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SOURCE Zacks Investment Research, Inc.
CHICAGO, Aug. 7, 2014 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "The reduced negative revisions rate at this stage in the reporting cycle is the most notable positive element of this earnings season."
Q3 Earnings Estimates Not Falling As Much
The Q2 earnings season has turned out to be better relative to other recent reporting periods – the growth rate is better, more companies are beating estimates, and the very modest improvement on the guidance front is starting to show up in estimates for the current period.
The reduced negative revisions rate at this stage in the reporting cycle is the most notable positive element of this earnings season, in my judgment. Estimates for the current quarter are following the pattern that we have been seeing quarter after quarter, but the magnitude of negative revisions is less relative to other recent comparable periods.
The Q2 Scorecard
We have already seen Q2 results from 424 S&P 500 members that combined account for 89.8% of the index's total market capitalization. Total earnings for these 424 companies are up +9.0% from the same period last year on +4.6% higher revenues, with 65.6% beating EPS estimates and 60.6% coming out with positive revenue surprises. This is better performance than we have seen at this stage in other recent reporting cycles.
We have two sets of charts below – one compares the earnings and revenue growth rates for these 424 companies with what these same companies reported in 2014 Q1 and the 4-quarter average and the second chart compares the beat ratios for these companies.
Growth is Better
The aggregate growth picture is actually even better once the Finance sector's anemic growth numbers are excluded. Excluding Finance, total earnings for the companies that have reported results are up +11.2% from the same period last year on +4.8% higher revenues.
And More Positive Revenue Surprises
The composite picture for Q2, combining the actual results from the 424 S&P 500 members that have reported with estimates for the still-to-come 76 companies, total earnings are expected to reach a new all-time quarterly record, and increase by +8.0% from the same period last year on +4.2% higher revenues. This is a material improvement over the preceding quarter, when total earnings and revenues were essentially flat.
Estimates for the 2014 Q3 have started coming down, with the current +4.2% total earnings growth expected in the current period down from +4.8% last week, and +6.3% at the start of the quarter. But the magnitude of negative revisions in Q3 thus far is the lowest we have seen in more than a year.
Most of the remaining Q2 earnings reports are from the beleaguered Retail sector, which will likely put downward pressure on Q3 estimates. But even then, the magnitude of negative revisions for Q3 will be the lowest that we have seen in a while. If sustained over the next reporting season (Q3 earnings season), this will represent a material improvement in the corporate earnings picture.
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