The following is an excerpt from this week’s Earnings Trends article. To see the full article, please click here.
With results from almost two-thirds of the S&P 500 index’s total market capitalization already on the books, we have a good sense of how the Q1 earnings season has unfolded. The actual numbers will evolve over the coming days as more companies report results, but the broad pattern emerging from the results thus far will likely carry through to the end.
This broad pattern pertains to broad-based top-line weakness. Not only are revenue growth rates very low, but an unusually large proportion of companies are missing consensus revenue estimates. We knew that growth rates would be challenged this earnings season following the unusually sharp cuts to estimates ahead of the reporting cycle, but the very low revenue beat ratios are nevertheless a standout element of this earnings season.
It appears that the analyst community underestimated the impact of the strong dollar on Q1 results. This point becomes obvious in a comparison of the results thus far between the internationally exposed S&P 500 members and the more domestic oriented Russell 2000 members. More on that in the detailed report, but let’s do the numbers first. Â
Q1 Scorecard (as of April 29th, 2015)
We now have Q1 results from 280 S&P 500 members that combined account for 66.0% of the index’s total market capitalization. Total earnings for these 280 companies are up +9.1% on essentially flat revenues (down -0.1%), with 66.2% beating EPS estimates and only 41.3% coming ahead of top-line expectations. This is weak performance compared to what we have seen from the same group of 280 S&P 500 members in other recent periods. (Please note that we provide the scorecard for the Russell 2000 index on page 16 of the detailed report)
The two side-by-side charts below give a historical context to the results thus far – by comparing the Q1 earnings & revenue growth rates (left-hand side chart) and earnings & revenue beat ratios (right-hand side chart) with what these same companies achieved in the preceding quarter as well as the 4-quarter average.
