Zacks Investment Research | Aug 29, 2014 01:15AM ET
The following is an excerpt from this weeks Earnings Trends article. To see the full article, please click here .
The 2014 Q2 earnings season is effectively in the books now, though results from 6 S&P 500 members are still awaited. The focus lately has been on the weak Retail sector results notwithstanding, this earnings season turned out to be better relative to other recent reporting periods.
Not only are total earnings for the S&P 500 on track to reach a new all-time quarterly record, but Q2’s earnings growth strength has been broad-based and driven by top-line gains, not just cost cutting. Importantly, estimates for the current period haven’t fallen as much as has been the trend in other recent quarters.
Total earnings for the 494 S&P 500 members that have reported Q2 results already are up +8.1% from the same period last year on +4.4% higher revenues, with 65.3% beating EPS estimates and 61.9% coming out with positive revenue surprises. This is better performance than we have seen in other recent reporting cycles.
We have two sets of charts below – one compares the earnings and revenue growth rates for these 494 companies with what these same companies reported in 2014 Q1 and the 4-quarter average and the second chart compares the beat ratios for these companies.
Growth is Better
The aggregate growth picture is actually even better once the Finance sector’s anemic growth numbers are excluded. Excluding Finance, total earnings for the companies that have reported results are up +10.1% from the same period last year on +4.7% higher revenues.
And More Positive Revenue Surprises
The composite picture for Q2, combining the actual results from the 494 S&P 500 members that have reported with estimates for the still-to-come 6 companies, shows total earnings reaching a new all-time quarterly record, and increasing by +8.1% from the same period last year on +4.4% higher revenues. This is a material improvement over the preceding quarter, when total earnings and revenues were essentially flat.
Estimates for the 2014 Q3 have started coming down, with the current +3.5% total earnings growth expected in the current period down from +6.3% at the start of the quarter. But the magnitude of negative revisions in Q3 thus far is the lowest we have seen in more than a year. The chart below compares the magnitude of negative revision to 2014 Q3 estimates over the first eight weeks of the quarter to negative revisions over comparable periods in the preceding 5 quarters.
The -1.1% decline in the magnitude of total earnings for Q3 over the first eight weeks of the quarter is the lowest decline that we have seen in comparable periods over the preceding 5 quarters. If sustained over the next reporting season (Q3 earnings season), this will represent a material improvement in the corporate earnings picture.
Key Points
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