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.
Active Trading with Lightspeed
Lightspeed provides active traders with all the tools required to help them find success in stock trading, and we have been developing and honing our active trader platform to offer the best possible user experience in the marketplace. With the intuitive interface layouts and institutional quality stock and options scanners, we aim to help traders reach their goals, no matter what their strategy is. We also offer our clients some of the lowest trading fees in the industry.
Lime Brokerage LLC is not affiliated with these service providers. Data, information, and material (“content”) is provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lime Brokerage LLC does not endorse, offer or recommend any of the services nor information provided by any of the above service providers and any service or information used to execute any trading strategies are solely based on the independent analysis of the user.