For Immediate Release
Chicago, IL – July 1, 2019 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Nike NKE, Micron Technology MU and Apple AAPL.
Handicapping Q2 Earnings Season
We still have a couple of weeks to go before the Q2 earnings season really gets underway, but the reporting cycle has actually gotten underway already. We have a light reporting docket this week because of the July 4th holiday, but results from 20 S&P 500 members are out already.
All of these initial releases from the likes of Nike, Micron Technology and others are for these companies’ fiscal quarters ending in May, which we count as part of the June-quarter tally. The fact is that by the time the big banks come around to report June-quarter results on July 16th, we will have seen such Q2 results from almost two dozen S&P 500 members already.
The earnings growth picture is not expected to change much from the flat growth reading in the first quarter. This trend of flat to negative growth is expected to persist through the September quarter, with current consensus estimates looking for positive growth resuming in the last quarter of the year. But Q4 is still far from away and a lot can happen between now and then.
For Q2, total earnings for the S&P 500 index will decline -2.9% from the same period last year on +4.3% higher revenues, with 9 of the 16 Zacks sectors expected to have negative earnings growth, including the Tech sector.
The overall tone and substance of management guidance during the last earnings season was on the negative side. This reflected a combination of slowing economic growth, particularly beyond the U.S., and rising input expenses. As a result, analysts steadily lowered their estimates for 2019 Q2.
The Tech Sector Drag
Growth is expected to be in negative territory for 8 of the 16 Zacks sectors, with Basic Materials, Aerospace, Technology, Conglomerates and Construction sectors expected to experience double-digit declines.
It is the weak Tech growth that is dragging the aggregate Q2 earnings growth rate for the S&P 500 index the most. The Tech sector is the biggest earnings contributor in the S&P 500 index, bringing in 22.6% of the index’s total earnings in forward 4-quarter period. Excluding the Tech sector’s drag, total earnings growth for the remainder of the index would be down only -0.6%.
Driving the Tech sector’s weak earnings growth expectation for the quarter is Apple and the broader semiconductor space. For Apple, June quarter earnings are expected to be down -15.4% on +0.1% higher revenues. The semiconductors industry has been struggling for the last few quarters and this trend is expected to continue in Q2 as well.
The expectation is that the semiconductor industry’s earnings declines bottom in Q2 and start improving from Q3 onwards.
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