Q2 Earnings Season Halftime Report
Estimize | Jul 30, 2015 12:13AM ET
And just like that, we’re already at the midpoint of the second quarter earnings season. Technically, we’re past that, with 264 S&P 500 companies reporting. As usual, we are in much better standing in regard to growth than we were at the beginning of the season.
Earnings per share growth currently stands at -0.3%, still negative but a big improvement from the -3.7% estimated before Alcoa (NYSE:AA) reported on July 8. Revenues remain suppressed at -3.3%, even lower than where they started (-2.4%). Of course, improving growth is due to a majority of companies beating the Estimize EPS consensus (62%), with only 44% beating revenues estimates.
The main themes in company statements have again revolved around the stronger dollar this quarter. A third of all reporting companies have mentioned currency headwinds as the culprit for disappointing bottom-line results, mainly those within the information technology and industrials sectors.
This impact will ease as we head into the third quarter, as the dollar began its ascent in Q3 2014, therefore the year-over-year comparison should be more in-line. About a quarter of reporting companies have hit on the impact of commodities, including lower oil prices. Regionally speaking, China has been a big topic as well, but comments have been mostly mixed, with many of the large multinationals in the S&P 500 still heavily relying on growth from that region. Greece has only been mentioned by a handful of companies at this point.
How did we get here?
h3 Sectors: winners and losers/h3Not much has changed since the season began, with health care retaining its position at the top. The sector has the highest YoY EPS growth rate of 15.3% as well as the largest revenue growth rate of 7.5%, especially impressive during a time when corporations are struggling to increase the top-line. As far as industries go, pharmaceuticals and biotechnology are neck-in-neck, increasing profits 20.9% and 20.2%, respectively. There are 13 companies within the pharma industry. Of the six that have reported thus far, AbbVie (NYSE:ABBV) and Eli Lilly (NYSE:LLY) have posted the largest earnings growth rates of 32% each. The darlings of the biotech space also continue doing their part, with Biogen (NASDAQ:BIIB), Celgene (NASDAQ:CELG) and Gilead Sciences (NASDAQ:GILD) all posting 20%+ earnings growth for the second quarter, with only the latter two putting up similar growth on the sales side.
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The last two weeks have been hot with releases from the tech space, first from the behemoths and then this week with social media names. Despite a few disappointing reports, the sector trails health care as the second best performing sector for Q2 with earnings growth of 7.0%, but minimal revenue growth of 2.6%. Despite a flurry of headwinds including the stronger dollar and the free-fall of the PC market, semiconductors have actually put up the best industry growth rate thus far of 24.9% on the bottom-line, yet only 2.6% on the top-line. Of the 16 companies in the industry, only 7 have reported, with three of those missing the Estimize consensus, two beating and two meeting. With over half of that industry yet to report, we'll have to see if that high growth rate can stay intact. Internet software and services follow, with EPS growth of 18.4% and revenues of 9.9%. Of these names, Google’s (NASDAQ:GOOGL) impressive YoY profit growth of 15% takes the cake; Results were even better for Facebook (NASDAQ:FB), which reported last night.
It’s no surprise that energy is the biggest laggard again this quarter. After reporting a decline in profits of 54% and revs of -36.6% last quarter, expectations are even steeper in Q2 at -61.1% and -39.2%, respectively. This should be as low as it goes, with estimates improving in the latter half of the year. This mostly has to do with the fact that oil prices began to drop in Q3 2014 in response to the stronger dollar, so we are finally about to get YoY comparisons that are apples-to-apples. The biggest names in the space, Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Valero Energy (NYSE:VLO) don’t report until next week, but due to their size, each could have a big impact on overall growth. Ex-energy, S&P 500 earnings growth would be up 7% this quarter vs. the current -0.03%.
Thus far, 61% of reporting companies beat the Estimize EPS consensus, while only 43% managed to beat on revenues. The best performing sector thus far is again health care, with 84% of companies beating on the bottom-line and 68% of companies surpassing top-line expectations. Consumer discretionary is also up there with 79% blowing past EPS predictions. Utilities seems to be in the roughest shape, while only 9 companies have reported from that sector, only 44% beat on earnings and 11% on sales.
For the second half of the season, investors will want to pay close attention to the big oil names that report, and the guidance that they offer for the latter half of the year. The retail parade will also commence in the next couple of weeks and should give a good read on the state of the U.S. consumer which seemed mixed during the first half of the year despite an improving economy and lower fuel prices.
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