Second quarter earnings season is coming to an end as 97% of the S&P 500 has reported quarterly results through this morning.
According to FactSet, second quarter earnings per share (EPS) are up 25% year-over-year with sales up 10%. Expectations were for 20% EPS growth with sales up 8.4% heading in to the reporting season in early July. We typically see more modest upside relative to Wall Street estimates.
Just under 77% of companies beat earnings estimates while only 15% missed -- both are well above the historical averages. On the top line, 74% beat sales estimates while 26% missed.
Notably, 58.5% of the S&P 500 traded higher in response to earnings, up from 47% following first quarter results.
It is no surprise that these phenomenal corporate results coincide with the highest quarterly economic growth in nearly four years -- U.S. Gross Domestic Product (GDP) grew 4.1% in the second quarter.
Tax cuts boosted growth and sentiment. Still, second quarter Earnings Before Interest and Taxes (EBIT, or profit) grew a robust 12.6%.
Second quarter EPS grew across every sector, but profits excluding interest expense and taxes fell in the Telecommunications (mostly AT&T and Verizon) and Utilities sectors.
- Second quarter EBIT growth by sector: Energy +125%, Materials +43.5%, Information Technology +17%, Consumer Discretionary +12%, Health Care +8.3%, Financials +7.2%, Industrials +5.8%, Real Estate +1.8%, Consumer Staples +1.6%, Utilities -7.7% and Telecommunications -12%.
Third quarter EPS are expected to grow 20% with sales up 7.3%, roughly in-line with estimates heading in to the second quarter reporting season. Estimates for the following quarter normally get pared down bit based on companies' conservative guidance.
For the year, EPS are expected to grow 21% with sales up 8%. Estimates called for 20% EPS growth with sales up 7.5% three months ago.
According to S&P Capital IQ, the S&P 500 trades at 18.1x GAAP earnings estimates. The earnings multiple falls to 16.5x looking at estimates for next year.
Earnings reports mostly from retailers and enterprise software companies will continue to roll out next week before volume drops off in September and third quarter earnings season picks up in mid-October.
Notable earnings out next week include:
- Tuesday: Best Buy (BBY), Tiffany's (TIF)... Hewlett Packard Enterprise (HPE), Tilray (TLRY)
- Wednesday: Dick's Sporting Goods (DKS), American Eagle (AEO)... Salesforce (CRM), PVH (PVH)
- Thursday: Dollar General (DG), Dollar Tree (DLTR), Burlington Stores (BURL), Campbell Soup (CPB), Ciena (CIEN)... Ulta Beauty (UTLA), lululemon (LULU), (Nutanix (NTNX)