Earnings remain front and center on the busiest day of the Q2 reporting session thus far, with more than 50 S&P 500 index members reporting results. A few positive reports notwithstanding, the overall tone coming out of this morning's long line-up of results is negative.
Of this morning's releases, Caterpillar's (CAT – Analyst Report) weak numbers are particularly notable given the company's status as a play on the global economy. We know that parts of the global economy have started doing better – the U.S. is in much better shape and Europe's outlook is steadily improving – but the overall global growth picture remains challenging. Caterpillar's construction equipment business is getting help from the U.S. housing recovery, but its mining business has been held back by slowing demand as a result of the commodity-price slump.
The company is doing a good job in keeping its costs under control, but it is the low demand environment in its key end markets, particularly in China, coupled with a strong u.s. dollar that prompted the company to lower its guidance. The China slowdown has been showing up in a number of other earnings reports as well, notwithstanding apple's (AAPL – Analyst Report) showing from that market.
Including this morning's super-busy line-up of reports from the likes of McDonald's (MCD – Analyst Report), General Motors (GM – Analyst Report), Comcast (CMCSA – Analyst Report) and others, we now have Q2 results from 151 S&P 500 members that combined account for 44.7% of the index's total market capitalization. Total earnings for these 151 index members are up +2.4% on essentially flat revenues (up +0.5%), with 73.7% beating EPS estimates and 42.8% coming ahead of top-line expectations.
These growth rates are materially below what we have been seeing from the same group of companies in other recent quarters, though the beat ratios (ratio of positive surprises) are around historical levels for earnings and on the low side for revenues. We should point out, however, that the revenue beat ratios have steadily improved in recent days after starting at an extremely low level earlier on.
The picture for Q2, combining the actual results from the 151 S&P 500 members that have reported results to estimates for the still-to-come 349 index members, is for total earnings to decline -3.2% from the same period last year on -4.7% lower revenues. Stronger growth from the Finance sector has helped the aggregate (composite) growth pace. Excluding the Finance sector, total Q2 earnings would be down -6.7% on -5.3% lower revenues – a fairly tough earnings backdrop for the market.
