For Immediate Release
Chicago, IL – October 12, 2017 – Zacks Director of Research Sheraz Mian says, “Total earnings for these 26 index members already reported are up +22.5% from the same period last year on +9.4% higher revenues.”
Q3 Earnings Season Gets Going
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
• The Q3 earnings season has gotten underway already, with results from 26 S&P 500 members out at this stage. Total earnings for these 26 index members are up +22.5% from the same period last year on +9.4% higher revenues, with 84.6% beating EPS estimates and 84.6% beating revenue estimates.
• This growth pace and beats proportion is about in-line with what we had seen from the same group of 26 index members in the preceding quarter, but it is an improvement over the 4- and 12-quarter averages, respectively.
• For the quarter as whole, total Q3 earnings for the S&P 500 index are expected to be up +1.2% from the same period last year on +5.1% higher revenues. With double-digit growth in each of the first two quarters of the year and earnings growth in the last quarter of the year currently expected to be in high single digits, the Q3 growth is on track to be the lowest this year.
• Tough comparisons for the Finance sector was all along keeping the overall Q3 growth pace down, with the sector’s year-over-year comparison notably deteriorating over the last two months as a result of the insurance industry’s exposure to this year’s active hurricane season.
• Q3 earnings for the insurance industry, which alone brings in roughly a quarter of the Finance sector’s total earnings, are expected to be down -45.1% from the same period last year on -0.7% lower revenues. Excluding the insurance drag, Finance sector earnings would be up +3.8% from the same period last year.
• Including the Finance sector, Q3 earnings growth is expected to be in negative territory for 8 of the 16 Zacks sectors, with double-digit declines for the Autos, Basic Materials, Aerospace and Transportation sectors.
• Earnings growth for Q3 drops to -0.7% (from +1.2%) when the strong Energy sector contribution is excluded from the aggregate picture. The Conglomerates sector is the only other sector, in addition to Energy, with double-digit earnings growth in Q3.
• Growth is expected to be strong for the Technology sector, with Tech earnings expected to be up +9.7% from the same period last year on +6.7% higher revenues.
• As has been the trend in recent years, estimates for Q3 have come down since the quarter got underway, but the magnitude of negative revisions compares favorably to other recent periods.
• For full-year 2017, total earnings for the S&P 500 index are expected to be up +6.9% on +4.7% higher revenues, which would follow +0.7% earnings growth on +2.1% higher revenues in 2016. Index earnings are expected to be up +11.8% in 2018 and +9.2% in 2019.
• Earnings growth is expected to turn positive in Q3 for the small-cap S&P 600 index, with total earnings for the index expected to be up +12% from the same period last year on +6% higher revenues. This would follow persistent earnings declines for the small-cap index – S&P 600 earnings growth was negative in 3 of the last 4 quarters.
• Strong growth from the Finance, Technology and Energy sectors is driving the small-cap growth. The Finance sector’s role is particularly notable in the small-cap index, with Q3 earnings growth dropping to +1.3% (from +12%) on an ex-Finance basis.
Estimates for Q3 came down since the quarter got underway, with the current +1.2% expected earnings growth down from +6.3% in late June.
We know from history that actual Q3 earnings growth will be a lot higher than what is expected at present, with the final growth tally for the quarter likely in the vicinity of what was expected at the start of the quarter (+6.3%). But whatever the final growth tally for Q3 turns out to be, it is unlikely to surpass what was achieved in the preceding two earnings seasons. What this means is that the Q3 growth pace will be the low point for the year.
The negative revisions trend was widespread, with all sectors experiencing estimate cuts. The more recent estimate cuts were to the Finance and Transportation sectors whose profitability suffered as a result of this year’s unusually active and impactful hurricane season.
The positive earnings report from Delta (NYSE: DAL – Free Report) and favorable pre-announcements in recent days from others have eased some of the initial post-hurricane worries about the air carriers. But the earnings impact of this year’s hurricanes is very much real for the insurers, as you can see in the negative revisions trends for a number of industry players like Chubb (NYSE: CB – Free Report), Travelers (NYSE: TRV – Free Report), AIG (NYSE: AIG– Free Report) and reinsurers like Everest Re (NYSE: RE – Free Report).
Earnings growth for the Finance sector was barely in positive territory ahead of these insurance issues, but the hurricane season pushed the sector’s Q3 earnings growth into negative territory. The sector is now expected to see a -8.6% decline in Q3 earnings on +1.1% higher revenues, with earnings growth in the insurance industry expected to be down -45.1%. Excluding the insurance industry drag, total Finance sector earnings would be up +3.8% from the same period last year.
Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.
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Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.
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