The second-quarter earnings season is underway and investors might want to take a peek at the construction sector, which is treading on a growth trajectory of late.
The latest Earnings Trends (as of Jul 25) shows upbeat expectations from this earnings season, with the bottom line of the S&P 500 index expected to grow 22.3% and revenues projected to rise 8.4%. In the first quarter, the S&P 500 companies witnessed earnings and revenue growth of 24.6% and 8.7%, respectively.
Moreover, out of the 147 S&P 500 companies that have come up with their financial numbers, 83.7% outpaced earnings estimates and 74.8% exceeded top-line expectations. Total earnings of these companies increased 23.3% from the same period last year on 9.1% higher revenues.
Construction Sector Earnings Expectations
The majority of the Zacks broad sectors (12 out of 16) are expected to report double-digit growth in the second quarter. The Construction sector seems to have a solid footing as well. The sector's earnings, within the S&P 500 cohort, are expected to increase 47.3% in Q2 compared with 49.7% in the last reported quarter. Revenues are also expected to improve 22.8% (versus 20.9% growth in Q1). Margins are projected to increase 1.5%, comparing favorably with the prior quarter's increase of 1.3%.
Building Products to Register Gains Despite Macro Woes
Given a solid underlying demand, supported by favorable household formation trends and a strengthening macro environment, the building product companies are likely to register solid gains this earnings season.
Meanwhile, construction spending in the United States has increased lately, supported by a steady increase in outlays on private as well as public construction projects. Sustained growth in construction activity drives demand for the companies' products, thereby helping it to boost profitability. Overall, second-quarter earnings are expected to mark an improvement from the first quarter for the building product companies. Moreover, first-quarter results were negatively impacted, owing to inflation, bad weather and rising rates.
That said, political and economic uncertainties continued to affect the industry. Higher raw material costs, and rising interest and mortgage rates raise concerns. High mortgage rates dilute demand for new homes as mortgage loans become expensive. This is lowering the purchasing power of buyers, and in turn, hurting volumes, revenues and profits of homebuilders, as well as building products suppliers. Indeed, there are concerns that are restricting the industry's growth to some extent for quite some time now. A higher demand and booming economy, along with a solid job market, are expected to keep the momentum alive.
Building Products Stocks to Report Earnings on Jul 30
Let us take a look at how the following construction companies are placed ahead of the second-quarter earnings release. Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP , the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Eagle Materials Inc. EXP - a manufacturer and distributor of cement, concrete and aggregates, gypsum wallboard, recycled paperboard, and oil and gas proppants - is scheduled to report first-quarter fiscal 2019 results. The company currently carries a Zacks Rank #2 and an Earnings ESP of +2.46%, a combination that increases the odds of an earnings beat. However, the company's earnings missed the Zacks Consensus Estimate in two of the trailing four quarters, with an average negative surprise of 7.2%. For the quarter-to-be reported, consensus estimates for earnings are pegged at $1.59, suggesting 35.9% year-over-year growth.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Eagle Materials Inc Price and EPS Surprise
Eagle Materials Inc Price and EPS Surprise | Eagle Materials Inc Quote
Trex Company, Inc. TREX is slated to report second-quarter 2018 earnings. The company, which is a manufacturer of alternative wood decking and railing products, has impressive earnings surprise history. It surpassed earnings estimates in each of the trailing four quarters, with an average beat of 11.7%. For the second quarter, the consensus estimate projects earnings of 64 cents, reflecting a 30.6% year-over-year increase. Despite carrying a Zacks Rank #2 at present, Trex's Earnings ESP is 0.00%, which decreases the odds of a beat.
Trex Company, Inc. Price and EPS Surprise
Trex Company, Inc. Price and EPS Surprise | Trex Company, Inc. Quote
PotlatchDeltic Corporation PCH presently flaunts a Zacks Rank #1 and has an Earnings ESP of +7.61%, suggesting that the company is poised for an earnings beat in the second quarter of 2018. Also, the company posted earnings, surpassing the consensus mark in three of the trailing four quarters, recording an average beat of 22.5%. For the quarter to be reported, consensus estimates for earnings remain at 61 cents per share, suggesting 13% rise from the year-ago quarter.
Potlatch Corporation Price and EPS Surprise
Potlatch Corporation Price and EPS Surprise | Potlatch Corporation Quote
Simpson Manufacturing Co., Inc. SSD is about to report its second-quarter 2018 results. For the quarter, the Zacks Consensus Estimate for earnings is pegged at 75 cents, reflecting year-over-year growth of 27.1%. Looking at the company's surprise history, investors might slightly feel disappointed as it missed estimates in two of the trailing four quarters, recording an average negative surprise of 2.3%. Simpson currently carries a Zacks Rank #4 (Sell) and it has an Earnings ESP of -1.33%, indicating the least possibility for a beat.
Simpson Manufacturing Company, Inc. Price and EPS Surprise
Simpson Manufacturing Company, Inc. Price and EPS Surprise | Simpson Manufacturing Company, Inc. Quote
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Click here to see the 5 stocks >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Trex Company, Inc. (TREX): Free Stock Analysis Report Simpson Manufacturing Company, Inc. (SSD): Free Stock Analysis Report Potlatch Corporation (PCH): Free Stock Analysis Report Eagle Materials Inc (EXP): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research