This quarter’s earnings numbers are amazing

As a follow-up to the daily post’s blurbs on banks and energy, I wanted to lay out a few bullet points on this earnings season in the US. The long and short is that this has been a very good season, both in terms of earnings growth and revenue growth.

For me, it’s the top line growth that is most telling because earnings can be massaged or flattered by share buybacks. When the top line is growing robustly, it says underlying sales momentum is positive.

Given the top line growth, I would also expect capital investment numbers to be good, bolstering US GDP growth going forward.

Here are some bullets:


  • Earnings growth: Right now, Reuters says consensus analyst second quarter earnings over Q2 2017 growth is 23.5%. Even excluding energy, the number is 20.4%.
  • Earnings growth top sectors: Energy at 123.7%, Materials at 32.3%, Tech at 25.4 and Financials at 25.2%
  • Earnings expectations: FactSet is saying that 81% of companies in the S&P 500 have reported, with 80% of those reporting a positive EPS surprise. 74% have reported an upside surprise on revenue. If the 80% figure holds, FactSet says it will be the highest mark since FactSet began tracking this metric in Q3 2008. Reuters pegs the figure on earnings at 78.6%, noting the long-term average is 64% and the prior four quarter average is 75%.
  • Revenue growth: Reuters pegs the Q2 2018 blended revenue growth estimate at 9.2%. Excluding the energy sector, the revenue growth estimate falls to a still healthy 8.0%. Both of these figures are above nominal GDP growth.
  • Revenue growth top sectors: Energy at 20.7%, Materials at 15.1%, Real Estate at 14.0%, and Technology at 13.6%. Financials showed 7.1% growth, highlighting how banks are benefitting as rates rise since earnings growth is much higher.

Here are some tables from Yardeni Research showing this quarter’s earnings and revenue growth in a recent historical perspective. Notice the revenue growth looks to be at a near cyclical high compared to the previous two business cycles and considering where nominal GDP growth is.

Earnings growth SP 500

Revenue growth SP 500


  • Earnings Guidance: According to FactSet, for Q3 2018, 48 S&P 500 companies have issued negative EPS guidance but only 17 S&P 500 companies have issued positive EPS guidance.
  • Valuation: FactSet has the forward 12-month P/E ratio for the S&P 500 at 16.5. That is above both the 5-year average (16.2) and the 10-year average (14.4). The Shiller P/E is at 33.25, which is high in historical terms.

Shiller PE 2018-08-08

Overall, these numbers look good. But the revenue growth numbers say we are probably hitting the limits on that front. Additional gains would have to come from operating leverage, share repurchases and multiple expansion.

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