For Immediate Release
Chicago, IL - October 22, 2015 - Zacks Director of Research Sheraz Mian says, "Looking at Q3 as a whole, total earnings for the S&P 500 index are expected to be down -4.0% from the same period last year on -5.1% decline in revenues."
The following is an excerpt from this week's Earnings Trends article. To read the full article, please click here .
3 Takeaways from Q3 Earnings Season
We are in the thick of the Q3 earnings season, with results more than a fifth of the S&P 500 members already out. No major surprises in the results thus far, with revenue gains hard to come by due to the combined effect of the strong U.S. dollar and global growth challenges.
Including this morning's reports, we now have Q3 results from 105 S&P 500 members that combined account for 27.5% of the index's total market capitalization. Total earnings for these 105 index members are up +0.4% from the same period last year on -1.7% lower revenues, with 69.5% beating EPS estimates and 45.7% coming ahead of top-line expectations. Looking at Q3 as a whole, total earnings for the S&P 500 index are expected to be down -4.0% from the same period last year on -5.1% decline in revenues. This would follow the -2.1% decline in earnings on -6.4% lower revenues in the preceding quarter.
Here are the three takeaways from the results thus far:
First , lack of growth remains the most notable metric at this stage, with aggregate earnings growth effectively flat (up only +0.4%) for the results thus far and in the negative when we look at the quarter as a whole. In fact, earnings growth thus far would be in the negative as well once the easy comparisons for Bank of America ( BAC ) are excluded from the numbers.
The second notable thing about the Q3 earnings season is the widespread revenue weakness. Not only is revenue growth non-existent (down -1.7% at this stage), but few companies are able to come out with positive revenue surprises despite the very low levels to which estimates had come down as result of the well-known global growth and unfavorable currency issues. This was a big issue the last earnings season as well, but analysts seem to have failed to make adequate adjustments to their models and estimates for Q3 either, resulting in widespread top-line misses across all sectors.
Earnings revenue beat ratios are tracking below what we saw from the same group of 105 S&P 500 members in other recent quarters. But the shortfall in revenue surprises is particularly notable.
Third , estimates for the current period have sharply started coming down in recent days, with total earnings for the S&P 500 index currently expected to be down -5.6% from the same period last year. This will be the third back-to-back quarter of declining earnings for the S&P 500 index.
Total earnings for the S&P 500 index are effectively flat this year, but are expected to be up strong next year. It is reasonable to be skeptical of next year's optimistic looking expectations given how the 2015 estimates evaporated in front of our eyes over the last two quarters. Maybe it will be different this time, but judging from what we have heard from management teams on the Q3 earnings calls in recent days, it is more than reasonable to be skeptical of these growth expectations for the outer periods.
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