The Q1 reporting cycle will really get going when the big banks come out with their March-quarter results on April 11th, but the Q1 earnings season has actually gotten underway already, with four S&P 500 members having come out with results for their fiscal quarters ending in February.
We have another 10 such index members on deck to report their respective February-quarter results this week, including bellwether operators like Nike NKE, FedEx FDX, Accenture ACN and others. We and other research organizations count these February-quarter results as part of our March-quarter tally.
By the time the big banks come out with their quarterly results about a month from now, we will have such Q1 results from almost two dozen S&P 500 members.
The market has been unimpressed with the results we have seen in recent days, with three of the four stocks losing ground following the respective quarterly releases. We should note that these results from Costco COST, Oracle ORCL, and Adobe ADBE coincided with a broad market sell-off, so one could attribute the post-release weakness in each of these stocks to broad market forces.
That said, we do know that while Costco, Oracle and Adobe came out with strong and better-than-expected results for their respective February quarters, their guidance for the current period was tentative and underwhelming. The weak guidance from these companies follows similarly soft outlooks from the likes of Walmart, Target, Delta Air Lines, and others.
These weak guidance releases are coming at a time of growing anxiety about the macroeconomic backdrop, with many in the market starting to worry about the U.S. economy’s near-term growth momentum. Uncertainty about the Trump administration’s tariff policies is starting to show up in business and consumer confidence measures, and some have begun to worry if the ongoing public sector job cuts will eventually seep into the private sector as well.
We discuss the earnings impact of the tariff question here >>>The Earnings Impact of the New Tariff Regime
While we acknowledge that near-term risks have increased for the economy, we remain sanguine in our outlook and see the ongoing market weakness as a buying opportunity. The U.S. economy defied skeptics during and after the extraordinary Fed tightening cycle and remains resilient enough to withstand the current bout of tariffs-centric uncertainty.
Importantly, for the first time in a long time, the U.S. economy enjoys the backstop of the Fed with more than enough ‘dry powder’ to jumpstart growth should investors’ worst fears come to fruition.
Depending on where the emerging tariff regime settles, earnings estimates will need to come down in response. But we all need to look past the daily noise around tariffs and remind ourselves that the overall corporate earnings picture has been steadily improving in recent quarters.
The earnings growth pace has been steadily accelerating in recent quarters, with the preceding quarter’s +13.7% earnings growth rate (+16.4% on an ex-Energy basis) reaching its highest level in three years.
We believe that these favorable growth trends will remain in place in the current and coming quarters, with the sectors contributing to the growth momentum expanding beyond the Tech core of the last couple of years.
Early Q1 Earnings Scorecard
As noted earlier, we have already seen February-quarter results from four S&P 500 members. Total earnings for these four index members are up +8.4% from the same period last year on an equivalent growth in revenues, with only one of the four beating EPS estimates and two of four beating revenue estimates.
The comparison charts below put the Q1 earnings and revenue growth rates for these four index members in a historical context.
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Image Source: Zacks Investment Research
Of the 10 index members reporting results this week, we will be closely watching for trends in the releases from Nike, FedEx, and Accenture, focusing on how they describe trends in their outlook.
Nike is expected to bring in 28 cents per share in earnings on $11.12 billion in revenues, representing year-over-year changes of -71.4% and -10.6%. While estimates have been stable over the past month, they have been cut more than -50% over the past three months.
The stock has been a true laggard lately, underperforming the broader market and the Zacks Consumer Discretionary sector by a wide margin, as the chart below shows.
Zacks Investment Research
Image Source: Zacks Investment Research
Nike shares have lost more than -60% of their value from their all-time peak in November 2021, with a host of self-inflicted steps that have weighed on the outlook. Specifically, the company’s much-needed focus on the direct-to-consumer effort that helped the business gain share during Covid resulted in management failing to nurture the far bigger wholesale channel. On top of this has been the perception of new product innovation and weakness in the Chinese market that have weighed on Nike shares.
Q1 Earnings Estimates Under Pressure
The expectation is that Q1 earnings will be up +6.0% from the same period last year on +3.8% higher revenues, which would follow the +13.7% earnings growth on +5.4% revenue gains in the preceding period.
The chart below shows current earnings and revenue growth expectations for 2025 Q1 in the context of where growth has been over the preceding four quarters and what is currently expected for the following three quarters.
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Image Source: Zacks Investment Research
We have been experiencing a relatively elevated magnitude of negative revisions to estimates for the current period (2025 Q1) even before the more recent signs of weakness in data that drove the recent run of soft guidance from several companies.
The chart below shows how Q1 earnings growth expectations have evolved since the quarter got underway.
Zacks Investment Research
Image Source: Zacks Investment Research
As noted earlier, there have been more negative revisions to Q1 estimates since the start of January compared to the comparable periods of the preceding few quarters. Not only is the magnitude of negative revisions to Q1 estimates more pronounced relative to the last few quarters, but it is also more widespread.
Since the start of the period in January, estimates have come down for 14 of the 16 Zacks sectors, with the biggest declines for the Conglomerates, Autos, Basic Materials, Aerospace, Consumer Discretionary, and others.
Medical and Construction are the two sectors whose Q1 estimates have increased since the quarter got underway.
The Tech sector, whose estimates have consistently been positive over the past year, is also suffering negative revisions to Q1 estimates. Optimism about the AI investment cycle suffered a psychological blow following China’s DeepSeek announcement. The resulting shift in market sentiment has weighed on the space ever since, causing the underperformance of AI-focused stocks this year.
You can see this in the performance of Oracle and Adobe, which reported strong quarterly results, but guidance was relatively weak. The chart below shows the year-to-date performance of these two stocks relative to the market (S&P 500 index) and the Zacks Tech sector.
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Image Source: Zacks Investment Research
A lot will be riding on the evolving earnings expectations for the Tech sector, which has been a pillar of growth over the last two years. The expectation is for Q1 earnings for the sector to be up +12.6% from the same period last year on +10% higher revenues, which will follow the sector’s +26.3% earnings growth in the preceding period.
Zacks Investment Research
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on a calendar-year basis, with double-digit earnings growth expected in 2025 and 2026.
Zacks Investment Research
Image Source: Zacks Investment Research
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