Total Q3 earnings for the S&P 500 index are expected to be up +3.8% from the same period last year on +4.6% higher revenues. This would follow the +8.6% earnings growth for the index in the preceding period on +3.8% higher revenues.Regular readers of our earnings commentary are familiar with our sanguine view on corporate profitability: the earnings picture isn’t great, but it isn’t bad either.Our takeaway from the Q2 earnings season has been that the overall earnings picture was stable, with management teams generally providing a reassuring view of the economic ground reality. We have been flagging, however, the emergence of question marks over the earnings outlook, as the revisions trend appears to have reversed the positive and favorable move that we had been highlighting for the preceding two to three quarters.This negative revisions trend is particularly notable regarding expectations for 2024 Q3, with earnings estimates for the period getting revised down much more than we had seen in other recent periods. You can see this in the chart below that tracks the evolution of Q3 earnings growth expectations over the last couple of months.
Image Source: Zacks Investment Research
Not only is the magnitude of cuts to Q3 estimates bigger than what we saw in the comparable periods for the last three quarters, but it is also widespread and not concentrated in one or a few sectors. Of the 16 Zacks sectors, estimates have been revised down for 14 sectors, with the Transportation, Energy, Business Services, and Aerospace sectors suffering the biggest declines. The Tech and Finance sectors are the only ones whose estimates have modestly risen since the period began.The chart below shows the Q3 earnings and revenue growth expectations in the context of what we saw in actual results over the preceding four quarters and what is expected over the following three quarters.
Image Source: Zacks Investment Research
Notwithstanding the aforementioned negative revisions trend, the expectation is for an accelerating growth trend over the coming periods.The chart below shows the overall earnings picture on a calendar-year basis, with the +8% earnings growth this year followed by double-digit gains in 2025 and 2026.
Image Source: Zacks Investment ResearchPlease note that this year’s +8% earnings growth improves to +9.6% on an ex-Energy basis.
Recapping the Q2 Earnings Season Scorecard
Please note that the Q2 earnings season isn’t officially over yet, as we still have 6 S&P 500 members that have yet to report quarterly results as of Friday, August 30th. Five of these remaining six index members are on deck to report results this week, including Dollar Tree, Hormel Foods, Hewlett Packard Enterprises, Copart, and Broadcom.For the 494 S&P 500 members that have reported Q2 results already through Friday, August 30th, total earnings are up +8.6% from the same period last year on +3.6% higher revenues, with 79.8% beating EPS estimates and only 60.1% able to beat revenue estimates.The comparisons charts below put the earnings and revenue beats percentages for these companies in a historical context.
Image Source: Zacks Investment Research
As we have been pointing out, the very low Q2 revenue beats percentage has been an enduring feature of this reporting cycle. In fact, the Q2 revenue beats percentage of 60.1% was a new low for this group of index members over the preceding 20-quarter period (5 years).The earnings focus lately has been on the Magnificent 7 member and semiconductor leader Nvidia (NVDA – Free Report), which came out with another beat-and-raise quarterly report on August 28th. Nvidia’s Q2 earnings increased +157.4% from the same period last year on +122.4% higher revenues.The market wasn’t impressed with Nvidia’s blockbuster results, as the company’s guidance came up short of the whispered range. While the analyst community is broadly laudatory in their commentary on the release, the stock has lost some ground. However, the lack of market follow-through for Nvidia shares could very well be a reflection of the stock’s impressive year-to-date gains rather than a comment on its outlook.More By This Author:Q2 Earnings Reflect Positivity, But Q3 Estimates Decrease
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