The 4 Biggest Takeaways From The Q2 2019 Earnings Season

By: Spencer Israel

The second quarter earnings season is just about in the books. With nearly 95% of the S&P 500 having reported for the quarter, here’s a breakdown of the biggest takeaways we learned.

Tariffs Were A Theme

A year ago, a CB Insights analysis pointed out that discussions of tariffs on earnings calls had never been higher. But mentions of the word had fallen off dramatically in the succeeding three quarters.

That trend reversed itself this time around. According to Factset, there was a more than 40% quarter-over-quarter increase in S&P 500 companies citing tariffs on their earnings calls in the second quarter, with 124 companies commenting on the effects of the trade war compared with 88 last quarter.

Perhaps unsurprisingly, the biggest change came from companies in IT, as the blacklisting of Chinese telecom Huawei caused major turmoil in the sector.

Earnings Beat Estimates More Often Than Revenue

This has been a common theme in recent years, as either the analysts are too bearish on earnings per share or companies genuinely exceed EPS expectations more consistently (or likely, some combination of the two).

According to Refinitiv, 73% of S&P 500 companies reported earnings per share (EPS) above analyst expectations for the quarter, while only 56% of companies reported revenue above expectations.

Leading the way was healthcare, with 95% of the companies to have reported for the quarter exceeding EPS estimates. On the other side of the coin, utilities stocks missed EPS estimates more than any other sector, with 53% of companies reporting EPS below the consensus estimate.

Companies Are Bearish Looking Ahead

Not all companies issue forward-looking guidance, but those who did were generally bearish.

Of the 82 companies in the S&P 500 who did give EPS guidance for either the upcoming quarter or full year, 61 announced negative expectations while 21 gave positive a positive estimate. This is a far worse ratio of bad announcements to good, according to Refinitiv.

Communications Services Has The Highest Earnings Growth Rate; Materials Has The Lowest

Overall, seven of the 11 S&P sectors expected to have a higher year-over-year earnings growth rate. Communication services led the way, with 17% of companies in the sector expecting to see higher earnings than the same period in 2018. Specifically, 69% of interactive media & services companies, which includes Twitter ($TWTR) and Pinterest ($PINS), expect higher earnings.

Materials has the lowest earnings growth rate of any sector, with 12% of companies expecting negative earnings growth in 2019. This is largely due to precious metals companies like copper and gold miners.

The author has no positions in any of the stocks mentioned.

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