FactSet Earnings Insight: 2019 Second Quarter Earnings in Review

The earnings season in the second quarter of 2019 came to end after trade and macroeconomic worries had given plenty of investors reason to fear the reports. FactSet Earnings Insights provides some review of the results in Q2 from its FactSet Earnings Insight data sheet. The figures focus on the S&P 500 constituents but paint a good picture of how the sectors fared in the earnings seasons.


Based on the data, S&P 500 companies fared relatively well compared to estimates in the second quarter on the bottom line. 75 percent of companies reported earnings above estimates and just 17 came in below. Technology continued to impress being on the higher end of the sector spectrum as 81 percent report earnings above estimates. Utilities was the only sector that was pessimistic with at least half reporting earnings below estimates. The Energy sector fought off volatile commodity prices to report earnings above estimates 72 percent of the time.


Beats were less likely on the top line though as only 56 percent S&P 500 firms saw revenues above estimates with the other 44 percent falling short. The difference in beats on top and bottom lines suggest companies looked to cutting costs to bolster its financial performance as revenues looked to slow. Technology was on the top end again with 73 percent reporting revenue above estimates, and Utilities, again on the low end, reported an 86 percent disappointment rate.


As is typical, negative surprises saw more movement then positive surprises in their respective directions. 94 companies that reported earnings 0-20 percent below consensus estimates saw stock prices losses averaging about -3.1 percent in the 2 days before and after the earnings event. Earnings beats above 40 percent only averaged a 2.5 percent gain. Overall, EPS surprises were met more negatively than the 5-year average. In 2019 Q2, positive surprises were rewarded with a 0.5 percent stock gain on average which is half of the 1.0 percent five-year average. Negative surprises were more negative with those companies' stocks falling -4.1 percent compared to the five-year average of -2.6 percent.

When looking at how much of a company's operations is foreign, there was a noticeable difference in financial performance of these groups. Companies with more than half of their revenue in the United States saw 6.4 percent revenue growth on average which is well above the -2.0 percent that companies with less than half of their revenues in the US. The deviation could be a reflection of the trade tensions from the tariff war between the US and China as well as a generally slower economic growth story outside of the US.


With Q3 coming soon, it looks like earnings could be another worry. Every sector in the S&P 500 saw more negative guidances than positive. Curiously, the Info Technology and Health Care sectors, which were the strongest sectors in the second quarter, saw a large difference in the amount of negative and positive guidances. Consumer Discretionary and Industrials, two sectors seeing the most trouble from the weakening macroeconomic trends, also saw the same disparity suggesting pressures there have not lifted.

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