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Q2 Earnings Reflect Positivity, But Q3 Estimates Decrease
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Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
With the Q2 earnings season now effectively behind us, we can confidently say that the overall earnings picture remains stable, with management teams generally providing a reassuring view of the economic ground reality. That said, question marks have emerged about the outlook, as estimates for the current period have weakened more than what we saw in the last two periods.
For 2024 Q3, total S&P 500 earnings are currently expected to be up +3.8% from the same period last year on +4.6% higher revenues. Estimates for the period have been coming down since the quarter got underway, with the current +3.8% earnings growth pace down from +6.9% in early July.
The Q3 negative revisions trend is far more extensive than what we had seen in the comparable periods of the preceding two quarters. Estimates have come down for 14 of the 16 Zacks sectors, with the biggest declines in the Energy, Medical, Transportation, and Business Services sectors. Estimates for the Tech and Finance sectors have gone up.
As noted in the context of 2024 Q3, earnings estimates for full-year 2024 have also been coming down lately, with estimates for 12 of the 16 Zacks sectors coming down since late June. Sectors suffering the major declines include Business Services, Consumer Discretionary, Energy, Transportation, Autos, and others. Estimates for the Tech, Finance, Retail, and Utilities sectors have increased in that period.
With the Nvidia (NVDA - Free Report) earnings release now out of the way, the Q2 reporting cycle is now effectively behind us.
As we have been noting all along, the profitability picture emerging out of this earnings season was one of steady improvement and stability, with the earnings growth pace reaching its highest level in two years and the dollar level of aggregate earnings reaching a new all-time quarterly record.
On the negative side of the ledger, companies struggled to beat revenue estimates, and the revisions trend reversed course, with estimates for the current period (2023 Q3) coming down at an accelerated pace.
Returning to the Nvidia report, the chip maker failed to impress the market even though it beat estimates and raised guidance once again. Nvidia’s earnings increased +157.4% from the year-earlier period on +122.4% higher revenues.
Weighing on the market’s reception was the ‘less-than-whispered’ guidance raise and the relatively softer margin embedded in the guidance. Analysts covering the stock have generally been laudatory of the release and see no reason to be concerned about the company’s outlook.
The Nvidia release completed the Q2 reporting cycle for the Magnificent 7 stocks, which, besides Nvidia, includes Apple, Amazon, Alphabet, Microsoft, Meta, and Tesla. Mag 7 earnings in Q2 were up +35.2% on +14.7% higher revenues, which followed +51.2% earnings growth on +14% higher revenues in the preceding period. Growth is expected to decelerate further in the coming periods, as the chart below shows.
Image Source: Zacks Investment Research
But as you can see above, while growth is expected to decelerate, it is still very strong.
The Earnings Big Picture
For the current period (2024 Q3), total S&P 500 earnings are expected to be up +3.8% from the same period last year on +4.6% higher revenues. Estimates have come down since the quarter got underway, as the chart below shows.
Image Source: Zacks Investment Research
This is a bigger decline to estimates relative to the comparable periods for the two preceding quarters. The negative revisions trend is widespread and not concentrated in one or two sectors, with estimates for 14 of the 16 Zacks sectors getting cut over this period. The Tech and Finance sectors are the only ones enjoying positive estimate revisions over this period.
The chart below shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on an annual basis.
Image Source: Zacks Investment Research
Please note that this year’s +8.0% earnings growth on only +1.8% top-line gains reflects revenue weakness in the Finance sector. Excluding the Finance sector, the earnings growth pace changes to +7.5%, and the revenue growth rate improves to +4.3%. In other words, about half of this year’s earnings growth comes from revenue growth, with margin gains accounting for the rest.
On the margins front, 11 of the 16 Zacks sectors are expected to have higher margins in 2024 relative to last year, with Tech, Finance, and Consumer Discretionary as the big gainers.
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Q2 Earnings Reflect Positivity, But Q3 Estimates Decrease
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
With the Nvidia (NVDA - Free Report) earnings release now out of the way, the Q2 reporting cycle is now effectively behind us.
As we have been noting all along, the profitability picture emerging out of this earnings season was one of steady improvement and stability, with the earnings growth pace reaching its highest level in two years and the dollar level of aggregate earnings reaching a new all-time quarterly record.
On the negative side of the ledger, companies struggled to beat revenue estimates, and the revisions trend reversed course, with estimates for the current period (2023 Q3) coming down at an accelerated pace.
Returning to the Nvidia report, the chip maker failed to impress the market even though it beat estimates and raised guidance once again. Nvidia’s earnings increased +157.4% from the year-earlier period on +122.4% higher revenues.
Weighing on the market’s reception was the ‘less-than-whispered’ guidance raise and the relatively softer margin embedded in the guidance. Analysts covering the stock have generally been laudatory of the release and see no reason to be concerned about the company’s outlook.
The Nvidia release completed the Q2 reporting cycle for the Magnificent 7 stocks, which, besides Nvidia, includes Apple, Amazon, Alphabet, Microsoft, Meta, and Tesla. Mag 7 earnings in Q2 were up +35.2% on +14.7% higher revenues, which followed +51.2% earnings growth on +14% higher revenues in the preceding period. Growth is expected to decelerate further in the coming periods, as the chart below shows.
Image Source: Zacks Investment Research
But as you can see above, while growth is expected to decelerate, it is still very strong.
The Earnings Big Picture
For the current period (2024 Q3), total S&P 500 earnings are expected to be up +3.8% from the same period last year on +4.6% higher revenues. Estimates have come down since the quarter got underway, as the chart below shows.
Image Source: Zacks Investment Research
This is a bigger decline to estimates relative to the comparable periods for the two preceding quarters. The negative revisions trend is widespread and not concentrated in one or two sectors, with estimates for 14 of the 16 Zacks sectors getting cut over this period. The Tech and Finance sectors are the only ones enjoying positive estimate revisions over this period.
The chart below shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on an annual basis.
Image Source: Zacks Investment Research
Please note that this year’s +8.0% earnings growth on only +1.8% top-line gains reflects revenue weakness in the Finance sector. Excluding the Finance sector, the earnings growth pace changes to +7.5%, and the revenue growth rate improves to +4.3%. In other words, about half of this year’s earnings growth comes from revenue growth, with margin gains accounting for the rest.
On the margins front, 11 of the 16 Zacks sectors are expected to have higher margins in 2024 relative to last year, with Tech, Finance, and Consumer Discretionary as the big gainers.