Zacks Earnings Trends Highlights: AutoZone and Costco

For Immediate Release

Chicago, IL – June 11, 2018 – Zacks Director of Research Sheraz Mian says, “Total Q2 earnings are expected to be up +17.9% from the same period last year on +7.9% higher revenues.”

Looking Ahead to Q2 Earnings Season

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

•    The Q1 earnings season turned out to be very strong, with growth reaching a 7 year high and broad-based momentum on the revenue side. The focus will now shift to the Q2 earnings season whose early results will start coming out in the next few days.

•    Total Q2 earnings are expected to be up +17.9% from the same period last year on +7.9% higher revenues, with 10 of the 16 Zacks sectors expected to have double-digit earnings growth.

•    For the 498 S&P 500 members that have reported Q1 results already, total earnings are up +24.4% from the same period last year on +8.7% higher revenues, with 76.9% beating EPS estimates and 74.5% beating revenue estimates. The earnings season has ended for 14 of the 16 Zacks sectors.

•    Except for the proportion of these 498 index members beating EPS and revenue estimates, which are tracking roughly in-line with the preceding quarter’s level, growth in Q1 is notably tracking above historical periods.

•    Q1 Earnings growth was in double-digit territory from the year-earlier level for 13 of the 16 Zacks sectors, including the Technology and Finance sectors. The Auto sector has the weakest growth of all 16 sectors, with +0.3% earnings growth on +1.4% higher revenues.

•    Energy sector earnings increased +75.7% from the same period last year on +14.2% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from +24.4% to +22.7%.

•    For the small-cap S&P 600 index, we now have Q1 results from 96.7% of the index’s total membership. Total earnings for these companies are up +30.6% on +9.3% higher revenues, with 54.4% beating EPS estimates and 72.3% beating revenue estimates. In addition to earnings and revenue growth, revenue surprises are notably tracking above historical periods for the small caps.

•    For full-year 2018, total earnings for the S&P 500 index are expected to be up +19.6% on +6% higher revenues. For full-years 2019 and 2020, earnings are expected to be up +9.6% and +9.7%, respectively. Revenues for the index are expected to be increase by +4.5% in 2019, and +4.6% in 2020.

•    The implied ‘EPS’ for the index, calculated using current 2018 P/E of 17.7X and index close, as of June 7th, is $156.64. Using the same methodology, the index ‘EPS’ works out to $171.75 for 2019 (P/E of 16.1X) and $188.40 for 2020 (P/E of 14.7X). The multiples for 2018 and 2019 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

Q2 earnings season Expectations

With the Q1 earnings season now effectively behind us, we are shifting our focus to the June quarter whose early results start coming out in the coming days. Most of these early results will be for companies with fiscal quarters ending in May, but they form part of our June-quarter tally. The recent AutoZone AZO and Costco COST reports fall in this category. We will have seen results from almost two dozen S&P 500 members with fiscal quarters ending in May by the time the big banks come out Q2 results on July 13th.

Total Q2 earnings for the S&P 500 index are expected to be up +17.9% from the same period last year on +7.9% higher revenues, with double-digit earnings growth for 10 of the 16 Zacks sectors, including Finance and Technology. This would be the 3rd quarter in a row of double-digit earnings growth for the index, a trend that is currently expected to continue in the second half of the year as well.

Energy sector earnings are expected to more than double from the year-earlier level, up +127.5%. Excluding the Energy sector, Total Q2 earnings for the rest of the index would be up +14.8%.

The one concerning part is the lack of positive revisions to Q2 estimates since the quarter got underway. The fact is that aggregate expectations for the quarter have barely budged since the quarter got underway

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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