Q1 Earnings Season To Show Growth Acceleration
Zacks Investment Research | Mar 16, 2018 03:54AM ET
It is too early to start talking about the 2018 Q1 earnings season, as we are almost a month away from the big banks kicking-off the latest reporting cycle. That’s when everyone in the market will start paying attention to the Q1 earnings season. Unfortunately for us, we don’t have the luxury to wait that long as we are responsible for maintaining the ‘books’ on every earnings season.
While we haven’t (officially) closed the books on the 2017 Q4 earnings season yet (we have results from 499 S&P 500 members at this stage), the 2018 Q1 earnings season has actually gotten underway already. Including Adobe’s (NKE ) and others.
The fact is that by the time the big banks come around to report March-quarter results (Alcoa (NYSE:AA) thankfully no longer has this honor), we will have seen Q1 results from almost two dozen S&P 500 members. The chart below shows the weekly calendar of the Q1 earnings season.
Expectations for 2018 Q1
The strong momentum we saw in the preceding earnings season is expected to continue this reporting cycle as well, with total earnings for the S&P 500 index expected to be up +15.5% from the same period last year on +7.2% higher revenues. This would follow the +13.5% earnings growth on +8.5% revenue growth in the 2017 Q4 earnings season, the best quarterly performance in more than 6 years.
There were two aspects of the preceding earning season that really stood out and put that reporting cycle in a category of its own. It will be interesting to see to what extent we see a repeat performance on those two counts in the 2018 Q1 earnings season.
These two standout features of the 2017 Q4 earnings season were the very strong momentum on the revenue front and impressive turnaround on the estimate revisions front.
The revenue momentum likely reflected a combination of the synchronized global growth environment and a favorable foreign exchange backdrop. With both of those factors still very much in play in Q1 as well, we can reasonably expect to see the revenue momentum trend continue this earnings season as well.
The story about trends in 2018 Q1 estimate revisions is better told by the chart below.
Get The News You Want
What this chart shows is that earnings growth expectations for 2018 Q1 moved up significantly since mid-December 2017. This represented a major trend shift relative to what we have been seeing over the last many years when estimates would actually be moving in the opposite direction. To be fair, the revisions trend had stabilized in the preceding quarters as well, with estimates for 2017 Q4 essentially remaining unchanged in the three months ahead of the start of that reporting cycle.
A big driver of these positive revisions is obviously the direct impact of the tax cuts, but that isn’t the only reason, as you can see in the revisions trend for revenues in the chart below.
We will be keeping a close eye on how estimates for 2018 Q2 evolve as companies report Q1 results and share their outlook for Q2 and beyond. Estimates for Q2 went up as well, as they did for the following quarters, when the same was happening to 2018 Q1 estimates. As of today, total Q2 earnings for the S&P 500 index are expected to be up +17.8% from the same period the year before on +7% higher revenues.
The chart below shows 2018 Q1 earnings growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, the growth pace is expected to accelerate in Q2 and continue in the following quarters.
As you can imagine, expectations for full-year 2018 are for an impressive showing, with total earnings for the S&P 500 index expected to be up by +21% from the year-earlier level on +6.8% higher revenues. If achieved, this will be the highest annual growth pace for the index since 2010.
The table below shows the summary picture for 2018 Q1, contrasted with what was actually achieved in the preceding period.
Standout Sectors
As you can see, the Energy sector remains a big growth contributor in Q1, with total earnings for the sector expected to be up +65.7% from the year-earlier period on +15.4% higher revenues. But growth for the quarter would still be in double-digits even on an ex-Energy basis (last row in the table above).
What is driving the strong Q1 growth isn’t the Energy sector, but rather the breadth of growth across all sectors, with double-digit earnings growth for 10 out of the 16 Zacks sectors, including Technology and Finance.
For the Technology sector, total Q1 earnings are expected to be up +19.5% on +11.4% higher revenues, which would follow the sector’s impressive +24.2% earnings growth on +11.5% higher revenue growth.
The Finance sector, which sat out the preceding quarter with an essentially flat showing, total Q1 earnings are expected to be up +18.7% from the same period last year on +4% higher revenues.
Driving the Finance sector’s strong growth in Q1 and beyond is the combined effect of tax cuts, higher interest rates and an improved domestic growth environment. Finance sector’s earnings were only up +1% in full-year 2017 and in low single digits in the three years prior to that, but are on expected to be up an impressive +25.3% in full-year 2018.
The Technology sector, on the other hand, has already been on stronger ground, with full-year 2017 earnings for the sector up +10.7% and expected to be up +22.4% in 2018. The enterprise spending environment was expected to improve this year even before the tax cuts, with the tax windfall expected to give a much needed boost to those trends. On top of these we have the existing secular trends in cloud computing, artificial intelligence and big data that are expected to remain growth areas in the space.
Please note that Technology and Finance aren’t just any two sectors out of the 16 in the S&P 500 index; these two sectors combined are the twin pillars of index’s total profitability, bringing in more than 40% of the index’s total earnings this year. The Energy sector’s outlook has improved, but the sector simply lacks the heft of these two. The Energy sector is expected to bring in about 5% of the index’s total earnings this 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 subscribers.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>
Here is a list of the 76 companies including 10 S&P 500 and reporting this week.
| Company | Ticker | Current Qtr | Year-Ago Qtr | Last EPS Surprise % | Report Day | Time |
| FIBROCELL SCIEN | FCSC | -0.23 | -0.33 | 17.07% | Monday | BTO |
| CANADIAN SOLAR | CSIQ | 1.03 | 0.24 | 0.00% | Monday | BTO |
| DARIOHEALTH CP | DRIO | N/A | -0.96 | -3.45% | Monday | BTO |
| LEJU HOLDINGS | LEJU | -0.19 | -0.19 | 10.53% | Monday | BTO |
| MEDIWOUND LTD | MDWD | -0.16 | -0.09 | 15.79% | Monday | BTO |
| ORACLE CORP | ORCL | 0.66 | 0.63 | 0.00% | Monday | AMC |
| ATYR PHARMA INC | LIFE | -0.43 | -0.53 | 15.69% | Monday | AMC |
| HEALTHEQUITY | HQY | 0.06 | 0.07 | 30.77% | Monday | AMC |
| CONDOR HOSPTLTY | CDOR | 0.2 | -0.37 | 16.67% | Monday | AMC |
| CARDLYTICS INC | CDLX | -0.33 | N/A | N/A | Monday | AMC |
| AVINGER INC | AVGR | N/A | -23.2 | -13.04% | Monday | AMC |
| LUXFER HOLDINGS | LXFR | 0.25 | 0.13 | 3.85% | Monday | AMC |
| ATENTO SA | ATTO | 0.25 | 0.19 | 4.35% | Monday | AMC |
| AIT THERAPEUTIC | AITB | -0.5 | N/A | -100.00% | Monday | AMC |
| DULUTH HOLDINGS | DLTH | 0.54 | 0.43 | 30.00% | Tuesday | BTO |
| CHILDRENS PLACE | PLCE | 2.49 | 1.88 | 4.88% | Tuesday | BTO |
| AFFIMED THERAP | AFMD | -0.17 | -0.17 | 0.00% | Tuesday | BTO |
| CHF SOLUTIONS | CHFS | N/A | -92.8 | 58.24% | Tuesday | BTO |
| ELBIT SYSTEMS | ESLT | N/A | 1.82 | N/A | Tuesday | BTO |
| LEXINFINTEC HLD | LX | N/A | N/A | N/A | Tuesday | BTO |
| FEDEX CORP | FDX | 3.06 | 2.35 | 10.80% | Tuesday | AMC |
| DXP ENTERPRISES | DXPE | 0.11 | 0.42 | -27.27% | Tuesday | AMC |
| AAR CORP | AIR | 0.5 | 0.38 | -5.41% | Tuesday | AMC |
| NOVABAY PHARMAC | NBY | -0.05 | -0.13 | -77.78% | Tuesday | AMC |
| UQM TECH INC | UQM | -0.02 | -0.03 | 33.33% | Tuesday | AMC |
| LAUREATE EDUCAT | LAUR | 0.31 | 0.33 | -49.18% | Tuesday | AMC |
| STEELCASE INC | SCS | 0.16 | 0.22 | 0.00% | Tuesday | AMC |
| GENL MILLS | GIS | 0.8 | 0.72 | 0.00% | Wednesday | BTO |
| PQ GROUP HLDGS | PQG | 0.12 | N/A | 37.50% | Wednesday | BTO |
| WINNEBAGO | WGO | 0.62 | 0.46 | 14.00% | Wednesday | BTO |
| LIQTECH INTL | LIQT | N/A | -0.19 | -50.00% | Wednesday | BTO |
| FIVE STAR QLTY | FVE | N/A | -0.12 | -25.00% | Wednesday | BTO |
| ON TRACK INNOV | OTIV | -0.01 | -0.03 | 50.00% | Wednesday | BTO |
| TECOGEN INC | TGEN | 0 | 0 | 100.00% | Wednesday | BTO |
| ARCOS DORADOS-A | ARCO | N/A | 0.1 | N/A | Wednesday | BTO |
| ACTUANT CORP | ATU | 0.14 | 0.11 | 5.56% | Wednesday | BTO |
| GUESS INC | GES | 0.53 | 0.41 | 9.09% | Wednesday | AMC |
| ELDORADO GOLD | EGO | 0 | 0 | -66.67% | Wednesday | AMC |
| FIVE BELOW INC | FIVE | 1.16 | 0.9 | 38.46% | Wednesday | AMC |
| ALTAIR ENGINEER | ALTR | 0.06 | N/A | -23.91% | Wednesday | AMC |
| WIDEPOINT CORP | WYY | 0 | -0.03 | 100.00% | Wednesday | AMC |
| WHEATON PRC MTL | WPM | 0.16 | 0.19 | 0.00% | Wednesday | AMC |
| SITO MOBILE LTD | SITO | -0.04 | -0.07 | -140.00% | Wednesday | AMC |
| HERMAN MILLER | MLHR | 0.49 | 0.39 | -3.39% | Wednesday | AMC |
| QAD INC-A | QADA | -0.11 | 0.06 | 75.00% | Wednesday | AMC |
| DARDEN RESTRNT | DRI | 1.64 | 1.32 | 4.29% | Thursday | BTO |
| ACCENTURE PLC | ACN | 1.49 | 1.33 | 7.83% | Thursday | BTO |
| CARNIVAL CORP | CCL | 0.43 | 0.38 | 26.00% | Thursday | BTO |
| CONAGRA BRANDS | CAG | 0.55 | 0.48 | 5.77% | Thursday | BTO |
| NOMAD FOODS LTD | NOMD | 0.31 | 0.14 | 26.09% | Thursday | BTO |
| MICHAELS COS | MIK | 1.21 | 0.96 | 2.33% | Thursday | BTO |
| G-III APPAREL | GIII | 0.16 | -0.16 | 8.44% | Thursday | BTO |
| COMMERCIAL METL | CMC | 0.26 | 0.25 | 57.89% | Thursday | BTO |
| BP (LON:BP) MIDSTREAM LP | BPMP | 0.28 | N/A | N/A | Thursday | BTO |
| CPI AEROSTRUCTR | CVU | 0.23 | 0.24 | 11.76% | Thursday | BTO |
| FUSION TELECOM | FSNN | -0.12 | -0.26 | -50.00% | Thursday | BTO |
| NEOGEN CORP | NEOG | 0.24 | 0.2 | 26.92% | Thursday | BTO |
| JINKOSOLAR HLDG | JKS | 0.23 | 0.66 | -76.47% | Thursday | BTO |
| LANDS END INC | LE | 0.44 | 0.41 | 106.67% | Thursday | BTO |
| SUPERCOND TECH | SCON | N/A | -0.61 | 8.00% | Thursday | BTO |
| CINTAS CORP | CTAS | 1.24 | 1.11 | 3.97% | Thursday | AMC |
| MICRON TECH | MU | 2.69 | 0.77 | 13.68% | Thursday | AMC |
| NIKE INC-B | NKE | 0.52 | 0.68 | 17.95% | Thursday | AMC |
| JAGGED PEAK EGY | JAG | 0.09 | 0.02 | 0.00% | Thursday | AMC |
| AT HOME GRP INC | HOME | 0.35 | 0.26 | 25.00% | Thursday | AMC |
| KB HOME | KBH | 0.3 | 0.15 | 9.09% | Thursday | AMC |
| SMART GLBL HLDG | SGH | 1.27 | N/A | 13.95% | Thursday | AMC |
| ASV HOLDINGS | ASV | 0.07 | N/A | -16.67% | Thursday | AMC |
| CAREDX INC | CDNA | -0.16 | -0.15 | 10.53% | Thursday | AMC |
| INTELLICHECK MO | IDN | -0.07 | -0.1 | 0.00% | Thursday | AMC |
| SIERRA METALS | SMTS | 0.02 | 0.01 | N/A | Thursday | AMC |
| CALADRIUS BIOSC | CLBS | -0.83 | -0.73 | 51.28% | Thursday | AMC |
| HTG MOLECULR DG | HTGM | -0.23 | -0.76 | 6.12% | Thursday | AMC |
| RESHAPE LIFESCI | RSLS | N/A | -2.65 | 9.00% | Thursday | AMC |
| POXEL SA FRANCE | PXXLF | N/A | N/A | N/A | Thursday | N/A |
| PLX PHARMA INC | PLXP | -0.55 | N/A | -7.32% | Friday | BTO |
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.