For Immediate Release
Chicago, IL - June 13, 2019 - Zacks Director of Research Sheraz Mian says, "Amazon's +118.6% higher earnings on +17% higher revenues in Q1 is having an outsized bearing on the retail sector's growth picture."
Taking Stock of the Earnings Picture
Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
- The growth picture is not expected to improve in the June quarter, which would follow the roughly flat finish in Q1. Driving this growth challenge is tough comparisons, with tax cuts boosting the year-earlier periods.
- Total Q2 earnings for the S&P 500 index are expected to be down -3.1% from the year-earlier period on +4.3% higher revenues. This would follow the +0.2% earnings growth in Q1 on +5.2% higher revenues.
- Estimates for Q2 have come down, but the magnitude of negative revisions remains below the comparable periods of other recent quarters. The -3.1% decline currently expected is down from flat growth in late-March.
- Q2 earnings growth is expected to be negative for 9 of the 16 Zacks sectors, with Technology, Basic Materials, Construction and Conglomerates as double-digit decliners.
- Recen t earnings releases have been from the Retail sector, whose Q1 earnings performance has been mixed relative to other recent periods. Total Q1 earnings and revenues for the sector are up +12.2% and +7.9% respectively, with 73.7% beating EPS estimates and 52.6% beating revenue estimates.
- For the S&P 500 index as a whole, Q1 earnings remained below the year-earlier level for 5 of the 16 Zacks sectors, with Energy (-22.4% decline), Basic Materials (-11.5%) and Technology (-7.2%) as the biggest drags. Excluding the Energy sector, Q1 earnings growth would be +1.3%.
- For the small-cap S&P 600 index, total Q1 earnings were -17.8% below the year-earlier level on +5.5% higher revenues (a dozen or so reports are still to come).
- For full-year 2019, total earnings for the S&P 500 index are expected to be up +1.8% on +3.3% higher revenues, which would follow the +23.1% earnings growth on +9.1% higher revenues in 2018. Double-digit growth is expected to resume in 2020, with earnings expected to be up +10.9% that year.
- The implied 'EPS' for the index, calculated using current 2019 P/E of 17.6X and index close, as of June 11th, is $163.81. Using the same methodology, the index 'EPS' works out to $181.59 for 2020 (P/E of 15.9X). The multiples for 2019 and 2020 have been calculated using the index's total market cap and aggregate bottom-up earnings for each year.
Q1 Earnings Season Scorecard for the Retail Sector
We now have Q1 results from 38 of the 39 retailers in the S&P 500 companies. Total earnings for these 38 retailers are up +12.2% from the same period last year on +7.9% higher revenues, with 73.7% beating EPS estimates and 52.6% beating revenue estimates.
This provides a mixed picture, with EPS beats tracking above or about in-line with historical periods while revenue beats are tracking below what we had seen from the same group of retailers in the past. Given how low expectations had been ahead of the start of this earnings season, this is a fairly weak showing from the traditional operators.
With respect to growth, earnings growth is tracking below what we had seen from the same group of 38 retailers in the past, but revenue growth is tracking either better or in-line with historical periods.
Please note that the Zacks Retail sector also includes the online vendors like Amazon AMZN and restaurant operators like McDonald's MCD , in addition to the traditional brick-and-mortar operators. A big part of the reported results from the 38 retailers are comprised of such online vendors or restaurant operators.
Amazon's +118.6% higher earnings on +17% higher revenues in Q1 is having an outsized bearing on the sector's growth picture.
Looking Beyond Q1 - The Big Picture
Earnings growth is expected to be negative in Q2 and Q3, with +5% growth currently expected in the last quarter of the year. This would follow the essentially flat showing in the first quarter of the year.
Zacks Investment Research
800-767-3771 ext. 9339
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer .
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
McDonald's Corporation (MCD): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.