Earnings Review: Most of the Second Quarter’s Heavy Lifting is Done

Second quarter earnings season is nearing “that’s all, folks” time as 448 of the S&P 500 companies have released the results of their quarterly checkups. With nearly 90% in the history books, its safe to say Q2 was a good quarter.

Nearly 73% of companies reported better than expected earnings per share (EPS). Meanwhile, 18% missed their marks. Although bullish surprises are down slightly from the first quarter’s 74.05%, the number of misses also declined from 19%.

Health Care companies dominated the leaderboard with 56 of 59 coming home with better than expected EPS. Consumer Discretionary got the silver medal at 76.74% followed by Information Technology’s bronze beat rate of 75.47%.

As it was last week, Utilities scored the worst in Q2. Just 11 of 28 were able to top Wall Street’s predictions. Energy continued to be an underperformer. However, most (60.71%) energy companies were able to make more than forecasted, dwarfing Utilities’ dismal 39% positive surprise rate.

Overall, earnings per share results benefitted from lower share counts, i.e. share buyback programs. Lower shares outstanding accounted for roughly 4% of the quarter’s EPS. Two-hundred-and-eighty-nine companies had a lower share count in the second quarter, whereas 150 saw their share count grow.

While nearly three out of four companies managed to put more on the bottom line than expectations, only 56% watched their top lines exceed their consensus numbers. Still, 56% is a solid number. The good news is that just four of 11 S&P sectors recorded year-over-year sales declines: Energy, Basic Materials, Communication Services, and Utilities.

Technology’s sales increased the most compared to last year at 12.26% with Consumer Discretionary finishing a close second at 11.99%. All but one sector generated quarter-over-quarter growth compared to the first quarter. Utilities get the lone laggard label- sales dipped 12.10%. Meanwhile, Energy produced the most robust quarter-to-quarter growth, checking in at 11.44% and the only sector to break into double-digits.

Year-over-year operating margins aren’t pretty. Just four of the 11 sectors increased the operating profits compared to 2018’s second quarter: Health Care, Financials, Utilities, and Real Estate. Fortunately, margins are up for seven of the 11 sectors compared to the 2019’s first three months. The strongest of which is Real Estate, followed by Energy.

Rising sales, earnings, and margins tend to be predictive, pointing at sectors and stocks that could offer investors a solid performance. Health Care seems to be firing on all cylinders. Investors looking to add to their portfolios might look within the Health Care sector for names that fit their risk tolerance and time horizon.

As mentioned up top, the bulk of Q2’s news is already in the public domain. This week, 425 companies are scheduled to release their profit scorecards.

Some of the names we have our eyes on include:

Macy’s, Inc. (M)
Agilent Technologies, Inc. (A)
Cisco Systems, Inc. (CSCO)

Walmart Inc. (WMT)
Applied Materials, Inc. (AMAT)
NVIDIA Corporation (NVDA)

Deere & Company (DE)

We will be previewing some of these companies during the week, so makes sure you check back.