Q1 US Earnings Update

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US Earnings Update

We are now halfway through the US earnings season, with almost half of S&P 500 companies reporting results for the first quarter. According to Factset, 59% have reported a positive revenue surprise and 77% have reported a positive earnings surprise. 17% reported earnings below estimates.

Given the strong market rebound in the first quarter, the earnings season was going to be an important one in determining the direction of markets for the rest of 2019. The number of earnings beats at this stage is above the five-year average and the blended year-on-year earnings decline for the first quarter is now -2.3%, ahead of the forecasted of -3.9%.

Big Beats

Ford shares rose by 10% after reporting profits of 44 cents per share, well above the 27 cents average estimate and signaling that the company’s strategic bets may be paying off. Revenue was propped up by utility vehicle sales, but efforts to trim costs in Europe and a broad product rollout are beginning to attract investors.

Amazon and Microsoft had continuing cloud business strength with earnings surprises of 17% and 14%, respectively. Facebook revenue grew 26% and had more active users than expected while earnings impressed, but they also made a $3 billion provision for expected fines relating to data breaches.

Lockheed Martin, the world’s largest defense contractor, beat earnings estimates by 38% with sales rising in all divisions, but cited trade policies and sanctions as an ongoing risk.

Big Misses

Exxon disappointed, missing earnings estimates by 23% as refining margins came under pressure during a period that suffered from numerous maintenance projects. Capital and exploration expenses increased by $2 billion.

3M, the diversified industrial company best known for its yellow post-it notes, suffered its worst one-day drop in a decade after reporting softening automotive and electronics sales in China. Management plans to lay off 2,000 workers and spend on corporate restructuring.

Eyes on Boeing

Results from Boeing were not too disappointing following two crashes that have seen 737 Max sales halted. The top and bottom line were as expected and a 15% decline in cash flow was not a surprise, but the question remains as to when sales of the Max will resume; they represent a third of revenue over the next five years.


Communication services are reporting the highest year-on-year revenue growth of all sectors. Information technology is reporting a year-on-year contraction in revenue, but to a lesser extent than expected, with InfoTech and Healthcare having the highest proportion of companies outperforming revenue estimates.
Healthcare is reporting the highest year-on-year earnings growth (+5.4%), while Utilities are also reporting strong growth (+4.5%). The Energy sector is reporting the largest y.o.y. decline at -30%, driven by lower oil prices over the last twelve months.

The Consumer discretionary sector has provided the largest aggregate surprise in earnings, while InfoTech is reporting the highest proportion of companies outperforming earnings estimates. However, InfoTech is reporting the second-highest y.o.y. earnings contraction with Technology, hardware and storage, and Semiconductor and Semiconductor Equipment reporting double-digit declines.


Looking forward, analysts expect a slight decline in earnings in the second quarter, followed by growth in the following two quarters, culminating in the calendar year earnings growth of 3.6%. This growth is heavily weighted to the final quarter.

Guidance has so far been underwhelming; the number of companies issuing negative EPS guidance is 84%, which is above the five-year average, driven by the cautious outlook from the Healthcare and InfoTech sectors.


Source: FactSet & Bloomberg

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