U.S. reporting season update
With 41 per cent of S&P 500 companies having reported their actual results as of Friday, the tally so far appears to be more optimistic than anticipated. Here’s a breakdown of the scorecard so far, as presented by Factset.
The earnings season has kicked off with a robust start:
Earnings per share (EPS) surprises
A remarkable 78 per cent of S&P 500 companies that have reported so far have reported a positive EPS surprise.
Revenue surprises
60 per cent of the same companies have posted positive revenue surprises.
Earnings growth
For Q2 2024, the blended year-over-year earnings growth rate for the S&P 500 stands at 9.8 per cent. Should this rate hold, it will represent the highest year-over-year earnings growth since Q4 2021, which saw a staggering 31.4 per cent.
Earnings revisions
Since June 30, the estimated year-over-year earnings growth rate has seen an increase from 8.9 per cent to the current 9.8 per cent. This improvement is attributed to upward revisions in EPS estimates and positive EPS surprises across six sectors.
Earnings guidance
Looking ahead to Q3 2024, the guidance is evenly split: Positive EPS guidance has been issued by 16 S&P 500 companies, while 16 companies have issued negative EPS guidance.
The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 is 20.6, which is higher than both the 5-year average (19.3) and the 10-year average (17.9).
Net profit margins
The aggregate or ‘blended’ net profit margin for Q2 2024 is currently reported at 12.1 per cent, which is a notable improvement compared to the net profit margin of 11.6 per cent a year ago, the five-year average net profit margin of 11.5 per cent and the previous quarter’s net profit margin of 11.8 per cent.
Factset notes this quarter marks only the second instance of the S&P 500 reporting a net profit margin above 12 per cent since Q2 2022, and analysts expect net profit margins to remain above 12.0 per cent for the rest of 2024, with estimates for Q3 and Q4 2024 at 12.4 per cent.
Meanwhile, six sectors have reported year-over-year increases in net profit margins for Q2 2024, led by financials (18.4 per cent vs. 16.7 per cent), information technology (24.9 per cent vs. 23.3 per cent), and communication services (13.4 per cent vs. 11.9 per cent).
Five sectors have seen a decline in year-over-year profit margins, led by real estate (35.0 per cent vs. 36.7 per cent).
Factset noted that despite a 9.7 per cent increase in the average price of oil year-over-year, the energy sector is facing particular challenges, with Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) set to report earnings on August 2. Significant downward revisions in earnings estimates appear to be common, with Exxon Mobil, Marathon Petroleum (NYSE:MPC), and Chevron seeing some of the most notable adjustments.
As the Q2 2024 reporting season unfolds, the positive trends in earnings surprises and growth rates offer a more bullish backdrop than many investors might assume. Some caution, of course, is always warranted, given that it is still early in reporting seasons, and the laggards are often bearers of worse news.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
