For Immediate Release
Chicago, IL - May 02, 2016 - Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Exxon ( XOM ), Chevron ( CVX ), Alphabet ( GOOGL ) and Apple ( AAPL ) .
To see more earnings analysis, visit http://at.zacks.com/?id=3207 .
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Why Are More Companies Beating Q1 Earnings Estimates?
We are past the halfway mark in the Q1 reporting cycle, with results from 62% of the S&P 500 members already out. With results from another 130 index members on the docket this week (more than 1100 companies in total), the Q1 earnings season will have ended for more than 88% of the index's total membership by the end of this week. The trends we have seen already this earnings season are not expected to change in any notable way with the still-to-come reports.
These trends include widespread growth challenges, more numerous positive surprises and fewer negative revisions to current-quarter estimates. It is perhaps not surprising to see a bigger proportion of companies beat estimates given how low estimates had fallen ahead of the start of this reporting cycle. The recent pullback in the exchange value of the U.S. dollar is likely helping on the margin side as well. But for the most part, the more widespread positive surprises are a function of low estimates.
The more notable development on the earnings front is the deceleration in negative estimate revisions to current-period estimates (estimates for 2016 Q2). Please note that estimates for the current period (2016 Q2) are still coming down and the trend will likely accelerate in the coming days as more companies report Q1 results and provide guidance about Q2.
As negative as this revisions trend looks, it is nevertheless an improvement over what we had seen in the comparable period in the preceding earnings cycle. A continuation of this decelerating negative revisions trend through the coming days will represent a notable improvement in the overall corporate earnings picture. The improved commodity-price backdrop and the reduced dollar drag are some of the more plausible explanations for this development. But it is also likely that Q2 estimates had already fallen enough at the time when Q1 estimates were coming down and there is simply not that much need for further downward adjustments.
Q1 Earnings Scorecard ( As of Friday, April 29th )
We now have Q1 results from 310 S&P 500 members that combined account for 72.8% of the index's total market capitalization. Total earnings for these index members are down -7.2% from the same period last year on -2.4% lower revenues, with 71.9% beating EPS estimates and 57.1% beating revenue estimates. The percentage of companies that are able to beat both EPS and revenue estimates is tracking 47.7% at this stage.
As referred to earlier, the two key takeaways from the results thus far are:
First , the growth challenge is not only very obvious, but also widespread. The Energy sector is no doubt dragging the reported growth pace quite a bit, following year-over-year comparisons we saw in the Exxon ( XOM ) and Chevron ( CVX ) reports. But the growth comparison still remains unfavorable even if we exclude the reported Energy sector reports from the sample of reported results.
Second , positive surprises are more numerous, particularly on the revenues side. The big driver of this is the low levels to which estimates had fallen ahead of the start of this earnings season. But as indicated earlier, the improving dollar is helping matters to some extent as well.
This incidence of more numerous positive surprises is visible in the 'blended' beats comparisons as well; 'blended beats' refer to companies that beat both revenues as well EPS estimates. At present, 47.7% of the 310 S&P 500 members that have reported results are beating both EPS and revenue estimates, which is better than what we saw from the same group of companies in the preceding quarter as well as the 4-quarter and 12-quarter averages.
Even the beleaguered Basic Materials and Industrial Products sectors have beat EPS and revenue estimates more often this time around compared to other recent periods. The proportion of Basic Material sector companies that have beat both EPS and revenue estimates in Q1 is 42.9%, which compares to 4-quarter and 12-quarter averages of 8.9% and 23.8%, respectively. The highest blended beat % are for the Construction and Medical sectors while the lowest is for Finance.
Tech Sector Results
Market participants found the Tech sector's Q1 earnings performance to be disappointing, with a number of the bellwethers like Google's parent Alphabet ( GOOGL ), Apple ( AAPL ) and others coming up short of estimates in their results and/or guidance.
Including all of the Tech sector reports that have come out already, we have Q1 results from 85.3% of the sector's total market capitalization in the S&P 500 index. Total earnings for these Tech companies are down -5.9% on +0.7% higher revenues, with 65.8% beating EPS estimates and 50% beating revenue estimates. Excluding the Apple drag, total earnings for the rest of the sector would be up +0.8%.
This is weak performance from these Tech companies relative to what we have seen from the same group of companies in other recent periods. What this shows is that not only growth remains challenged, but fewer are able to beat expectations. In fact, positive revenue surprises are tracking 10 percentage points below the 4-quarter average and 13 percentage points below the 12-quarter average.
Q1 Estimates As a Whole
Combining the actual results from the 310 S&P 500 members that have reported results with estimates for the still-to-come 190 members, total Q1 earnings are currently expected to be down -7.3% from the same period last year on -1.1% lower revenues. This will be the 4th quarter in a row of earnings declines for the index.
Energy is the big drag in Q1, as it has been in other recent periods, with total earnings for the sector expected to be down -111.8% from the same period last year on -31.8% lower revenues. Excluding the Energy sector, earnings growth for the remainder of the index would still be in the negative - down -1.8%. In total, 9 of the 16 Zacks sectors are on track for negative earnings growth in Q1, including Finance and Technology, the two biggest sectors in the index.
Current quarterly earnings growth expectations for the index in 2016 Q1 and the following four quarters contrasted with actual declines in the preceding three quarters. Growth is expected to be negative in 2016 Q2 and barely in positive territory in the following quarter.
Q1 is on track to be the 4th quarter in a row of earnings declines for the index. This trend of earnings declines is expected to continue into the second quarter and most likely into the following one as well.
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