After Alcoa’s report yesterday Q2 earnings season is officially underway. The first quarter was largely filled with disappointments, despite a majority of companies in the S&P 500 topping expectations. Growth came in negative for yet another quarter, falling by over 2% and further entrenching us in the earning recession. Unfortunately, second quarter earnings are expected to be more of the same with early indications calling for negative earnings and revenue growth. The worst of performers are expected to come from sectors such as Airlines, Energy, Technology or Financials. According to Estimize data these sectors have been on the move, as witnessed by negative year over year growth estimates, heavy downward revisions and a history of missing expectations. The combination of these factors have typically led to a significant underperformance.
Photo Credit:Â Julio Gormaz
Airlines
It’s not surprising to see airlines on a list of worst performers for the second quarter. Many of the traditional names like United, Delta and American Airlines have struggled to gain traction in this volatile environment. The stocks have been hit hardest from waning travel demand and currency headwinds. Between terror attacks and health scares, people are more reluctant to travel, especially overseas. The strong U.S. dollar has also hurt topline growth and with Brexit aftermath expected to loom for the next few years, the airlines should continue to underperform in key PRASM metrics. That said, discount airlines like Southwest and Spirit have remained resilient. The biggest difference is that these names are insulated from macroeconomic risk because they only offer domestic flights.
Energy
A lot has occurred in the energy market that has caused the U.S. oil giants to tumble. Low crude prices and the fallout in Doha have put pressure on Chevron and Exxon Mobil’s earnings. Both revenue and earnings have steadily declined over the past 2 years tracking the lower prices in oil. After hitting lows in February, oil had started to show some signs of life, eclipsing $50 per barrel. It won’t be long until rising oil prices boost earnings but don’t expect it to be as soon as this quarter. Assuming we don’t see more Brexit uncertainty and the US presidential election isn’t too tumultuous, then energy stocks might be on their way to reversing their misfortunes
