Key Takeaways from Q4 Earnings Results Thus Far

The market's favorable momentum in recent days is likely not a reflection of its happiness with corporate earnings reports, but rather a result of optimism about some of the macro worries that weighed on sentiment in the last quarter of 2018.

This doesn't mean that Q4 earnings results are bad; they are not. But rather that they aren't so good that the market would be cheering them.

We probably shouldn't get too definitive in our conclusions about the Q4 earnings season at this stage. After all, we have seen results from only 11% of S&P 500 members and the sample of results at this stage is weighted towards the Finance sector. The Q4 reporting cycle ramps up materially this week, with another 56 S&P 500 members representing all the major sectors coming out with quarterly results.

Here are the key takeaways from the Q4 earnings season after seeing results from 55 S&P 500 members through Friday, January 18th.

First , growth is decelerating. This isn't a surprise, as we knew already that Q4 growth would be materially below the pace set in the first three quarters of the year.

Total earnings for the 55 index members that have reported are up +16.9% from the same period last year on +9% higher revenues. Earnings and revenue growth for the same cohort of companies had been +22% and +9.7% in the preceding earnings season. The comparison chart below puts this growth deceleration in a historical context for these 55 index members.

The growth pace is on track to decelerate even further in the current and coming quarters, as we will show a little later.

Second , positive surprises are hard to come by, particularly on the revenues side.

For the 55 index members that have reported results already, 70.9% are beating EPS estimates and only 56.4% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 83.6% and 60% in the Q3 earnings season. The comparison charts below put the Q4 beats percentages in a historical context for these 55 companies

Positive revenue beats have not been this hard to come by in a while. In fact, the proportion of positive Q4 revenue surprises is the weakest in the last three years, as the chart below shows.

With Q4 positive surprises this hard to come by, one would reasonably assume that perhaps estimates had been too high. We know that wasn't the case as estimates for the quarter had fallen the most of any other recent periods.

Third , estimates for 2019 Q1 and full-year 2019 are coming down in a major way, with the Q1 growth rate at risk of falling into negative territory.

The chart below shows how estimates for 2011 Q1 have evolved since late-November 2018.

The negative revisions to 2019 Q1 estimates are along the same lines that we saw ahead of the start of the Q4 earnings season as well. Estimates for full-year 2019 have been coming down as well, as the chart below shows.

This chart is tracking consensus earnings growth expectations since the second half of 2018 got underway. As you can see, estimates were effectively unchanged during the September quarter, but they have been on a consistent downtrend since early October. Many in the market suspect that estimates have further to drop before stabilizing.

Key Earnings Reports This Week

Monday, January 21st : No releases because of the MLK holiday

Tuesday, January 22nd : We have 11 index members reporting results on Tuesday, with Johnson & Johnson (JNJ) and Comcast (CMCSA) as the major releases in the morning and IBM (IBM) after the market's close.

Wednesday, January 23rd : We have 20 S&P 500 members reporting results that day, with Proctor & Gamble (PG) in the morning and Ford (F) in the evening as the major ones.

Thursday, January 24th : We have another 20 index members on deck to reports results on Thursday, with Intel (INTC) and Starbucks (SBUX) as big reporters, both after the market's close.

Friday, January 25th : Another 6 index members report results on Friday, all in the morning.

Q4 Earnings Season Scorecard ( as of Jan. 18th, 2019 )

We now have Q4 results from 55 S&P 500 members that combined account for 15.1% of the index's total market capitalization. Total earnings for these 55 index members are up +16.9% from the same period last year on +9% higher revenues, with 70.9% beating EPS estimates and 56.4% beating revenue estimates.

For the Finance sector, we now have Q4 results from 45.8% of the sector's total market cap in the S&P 500 index. Total earnings for these Finance companies are up +15.8% from the same period last year on +3.9% higher revenues, with 72.7% beating EPS estimates and 45.5% beating revenue estimates.

The comparison charts below put the Finance sector's Q4 results in a historical context.

For Q4 as a whole, total earnings for the S&P 500 index are expected to be up +10.7% from the same period last year on +5.3% higher revenues, which would follow the +25.7% earnings growth on +8.4% higher revenues in 2018 Q3.

Earnings growth is expected to be in double digits for 8 of the 16 Zacks sectors, with Energy (+60.5% growth), Finance (+20.3%), Construction (+24.5%) and Transportation (+25.5%) as the strongest growth. Tech sector earnings are expected to decelerate meaningfully in Q4, up +3.8%, after back-to-back quarters of very strong growth. The Tech sector's growth pace has come down the most in recent days as analysts adjusted their estimates lower following the Apple pre-announcement.

Three sectors are expected to have lower earnings in Q4 relative to the year-earlier period, namely Conglomerates (-13.1% decline), Autos (-15.4%) and Utilities (-7.3%).

The table below shows the summary picture for Q4, contrasted with what was actually achieved in the preceding earnings season.

The chart below shows Q4 earnings and revenue growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 4 quarters. As you can see in the chart below, the growth pace is expected to decelerate materially from what we saw in the first three quarters of the year.

The chart below shows the same data on a rolling 4-quarter basis.

Whether we look at the growth picture on a quarterly basis or on a rolling quarter basis, there is no doubt that growth peak is now behind us. The question now is how much estimates for the coming quarters have still to come down. And the answer to that question will depend on the evolving economic backdrop that we discussed at the start.

For more details about the overall earnings picture, the Q4 earnings season and expectations for the coming periods, please check our weekly Earnings Trends report.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview .

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6% and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

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

Starbucks Corporation (SBUX): Get Free Report

Procter & Gamble Company (The) (PG): Get Free Report

Johnson & Johnson (JNJ): Get Free Report

Intel Corporation (INTC): Get Free Report

International Business Machines Corporation (IBM): Get Free Report

Ford Motor Company (F): Get Free Report

Comcast Corporation (CMCSA): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.