Note: The following is an excerpt from this week’s Earnings Trends report.
Here are the key points:
- Total Q3 earnings for the 120 S&P 500 members that have reported results through Wednesday, October 23rd, are up +1.9% on +4.2% higher revenues, with 79.2% beating EPS estimates and 63.3% beating revenue estimates.
- The earnings growth pace for this group of 120 index members represents a deceleration from what we had seen in the first two quarters of the year, while the revenue growth pace is roughly in line with the recent trend line.
- Looking at Q3 as a whole, combining the actual results from the 120 index members that have reported with estimates for the still-to-come companies, total S&P 500 earnings are currently expected to be up +3.0% from the same period last year on +4.9% higher revenues.
- Q3 earnings for the ‘Magnificent 7’ companies are expected to be up +16.2% from the same period last year on +13.6% higher revenues. This would follow the +35.2% earnings growth on +14.7% higher revenues in Q2. Excluding the ‘Mag 7’, Q3 earnings growth for the rest of the index would be down -0.1% (vs. +3.0% otherwise).
Impacts of Magnificent 7’s Earnings Growth
The earnings focus shifts to the Tech sector in general and the Mag 7 companies in the coming days, with five members of the group – Apple, Amazon, Meta, Alphabet, and Microsoft – coming out with Q3 results next week.
The Mag 7 stocks appear to have ceded their market leadership role over the last few months.
You can see this shift in the year-to-date chart below. Aside from Nvidia and Meta, the other five are now lagging the market.
Image Source: Zacks Investment Research
The Q3 earnings results in the days ahead will provide these companies another opportunity to make the case.
There is no escaping the fact that these mega-cap operators are enjoying sustainable profitability growth. The Mag 7 companies are set to account for 21.3% of all S&P 500 earnings in Q3.
The Broader Earnings Landscape
Looking at Q3 as a whole, total earnings for the S&P 500 index are now expected to be up +3.0% from the same period last year on +4.9% higher revenues.
If not for the Energy sector drag (decline of -25.6% in Energy), the Q3 earnings growth pace would improve to +5.3%. Excluding the Tech sector’s contribution, quarterly earnings for the index would be down -0.3%.
The quarterly earnings growth pace is expected to improve from next quarter onwards.
For the current period (2024 Q4), total S&P 500 earnings are expected to be up +9.1% on +5.3% higher revenues. Q4 earnings would be up +10.9% had it not been for the Energy sector drag.
Estimates for the period have started coming down since the quarter began.
The revenue weakness in the Finance sector is impacting earnings growth.
Please note that this year’s +7.4% earnings growth on only +1.9% top-line gains reflects revenue weakness in the Finance sector.
About half of this year’s earnings growth comes from revenue growth, with margin gains accounting for the rest.
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