The recent quarterly releases from Costco (COST – Free Report) and AutoZone (AZO – Free Report) kicked off the 2024 Q2 earnings season. The earnings reports from Costco and AutoZone were for their respective fiscal quarters ending in May, which we and other research organizations count as part of the overall June quarter or Q2 tally.In fact, by the time the big banks release their quarterly results on July 12th, we will have such Q2 results from almost two dozen S&P 500 members.Regular readers of our earnings commentary are familiar with our sanguine view of corporate profitability. The growth picture has been steadily improving over the last few quarters, and the revisions trend has notably stabilized lately.The ‘doom & gloom view’ of corporate profitability that a noisy segment of the market appeared to subscribe to last year has largely moved to the fringes. Driving this evolution has been the U.S. economy’s resilient performance in the face of the Fed’s extraordinary tightening. With the Fed now gearing up to start easing policy in the coming months, many of the dire economic and corporate earnings risks have eased significantly.This is the macro backdrop in which we digested the Q1 earnings season and will be receiving the Q2 earnings results for in the coming days.The current expectation is that Q2 earnings for the S&P index will be up +8.7% from the same period last year on +4.6% higher revenues. This would follow the expected +6.8% earnings growth on +4.3% revenue gains in 2024 Q1 (Note: the Q1 earnings season’s hasn’t ‘officially’ come to an end yet, as results from 10 index members are still awaited, as of Friday, May 31st).The chart below shows current earnings and revenue growth expectations for 2024 Q2 in the context of where growth has been over the preceding five quarters and what is currently expected for the following three quarters.
Image Source: Zacks Investment ResearchAs we have consistently flagged in our commentaries, the revisions trend for 2024 Q2 and full-year 2024 has been very favorable lately.The chart below shows how Q2 earnings growth expectations have evolved since the quarter got underway.
Image Source: Zacks Investment ResearchAs you can see above, Q2 estimates went up after the period got underway, started coming down only in recent weeks, and still remain only a hair below where they stood at the start of the quarter.The improving earnings outlook for the Energy sector has been a major contributor to this favorable revisions trend at the index level. But the Energy sector isn’t the only sector that has enjoyed positive estimate revisions since the start of April. Other sectors enjoying positive estimate revisions include Transportation, Utilities, Tech, and Autos. On the negative side, estimates have been cut for 11 of the 16 Zacks sectors, with notable declines at Industrial Products, Aerospace, Consumer Staples, Conglomerates, Construction, and others. Embedded in current Q2 earnings and revenue estimates is a steady improvement in margins, continuing the positive trend that has been in place since 2023 Q3. The chart below shows the year-over-year change in net margins.
Image Source: Zacks Investment ResearchThis chart shows that the extreme margin pressure that we witnessed in 2022 and the first half of 2023 is now behind us.For 2024 Q2, net margins are expected to be above the year-earlier level for 9 of the 16 Zacks sectors, with the biggest gains at Tech, Medical, Finance, Consumer Discretionary, and others. On the negative side, margins are expected to be below the year-earlier level for 7 of the 16 Zacks sectors, with major pressure at Basic Materials, Autos, Transportation, and other sectors.The Tech sector has been a major contributor to the index growth in recent quarters, and that trend is expected to remain in place in 2024 Q2 as well. Total earnings for the sector are expected to be up +14.4% on +9.3% higher revenues paired with a 102 basis point expansion in net margins.The chart below shows the year-over-year change in the Tech sector’s net margins
Image Source: Zacks Investment ResearchAs you can see above, the period of easy comparisons is coming to an end, but the overall margins outlook is still favorable for the space.Looking at the overall earnings picture on an annual basis, total 2024 S&P 500 earnings are expected to be up +9% on +1.7% revenue growth.
Image Source: Zacks Investment Research
Recap of Q1 Earnings Season ScorecardAs noted earlier, the Q1 earnings season has not officially ended yet, even though the early Q2 results have started coming out already. We mentioned that the recent Costco and AutoZone reports for their fiscal periods ending May fall in 2024 Q2.Through Friday, May 31st, we have seen Q1 results from 490 S&P 500 members. Total Q1 earnings for these 490 index members are up +7% from the same period last year on +4.3% higher revenues, with 78.4% beating EPS estimates and 60.4% beating revenue estimates.The comparison charts below put the Q1 earnings and revenue growth rates in a historical context.
Image Source: Zacks Investment ResearchThe comparison charts below put the Q1 EPS and revenue beats percentages in a historical context.
Image Source: Zacks Investment ResearchMore By This Author:Taking Stock Of The Current Earnings Picture
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