zondag 9 juli 2017

BoA; What To Expect From Q2 Earnings

# Record results from the early reporters; So far, 23 “early reporters” with May quarter-end have reported results. These companies are concentrated in the Consumer and Tech sectors but can often give a read on the full quarter’s results: we’ve found a 60% correlation since we’ve been tracking the data in 2012 between the proportion of early reporters beating on EPS and sales vs. the overall proportion of EPS and sales beats that quarter, with an even stronger correlation (75%) for sales beats alone. So far, 78% of companies have beaten on EPS, 78% have beaten on sales and 70% have beaten on both, the best results we’ve seen since we began tracking data for the early reporters in 2012. Last quarter at this time, 72% had beaten on EPS, 53% had beaten on sales and 70% had beaten on both. This suggests beats could be widespread this quarter, and that the aggregate earnings beat could be larger than our 2% forecast...


 # Sales trends expected to remain healthy; Consensus expects sales growth of +5% YoY, a deceleration from 1Q’s 7% growth as we continue to pass the easy YoY comparisons from the fall in oil prices and run-up in the US dollar during mid-2014-early 2016. We estimate currency detracted ~90bp from YoY sales growth in 2Q, with strength in the Brazilian real the biggest positive contributor on a YoY basis while weakness in the pound was the biggest detractor, similar to in 1Q17. Constant-currency sales growth for the S&P ex. Fins. & Energy is expected to decelerate to +5% from +6% after improving for three quarters (Chart 6)...


The high proportion of sales beats from the early reporters bodes well for sales in 2Q, as do sales revisions, which sit at a six-year high despite a tick-down in June (Chart 7)...


# Corporates have been very optimistic, but could temper their tone in 2Q; Guidance trends heading into earnings season have remained strong: the three-month ratio of above- vs. below consensus earnings consensus fell just slightly in June (to 0.87 from 0.93) after three months of improvement, but continues to sit well above its longterm average of 0.63, and at its highest levels since late 2014. The more volatile one-month guidance ratio climbed in June to 0.86 (from 0.52), well above its typical June average of 0.47. But while those corporates issuing guidance generally been positive, instances of guidance have grown sparse, there were just 18 instances 2Q or full-year earnings guidance by S&P 500 companies last month, the lowest ever for the month of June. After record optimism by corporates in 4Q and 1Q following the election, we suspect corporates could temper their tone in 2Q given growing uncertainty around the timing and magnitude of tax reform/stimulus and the increase in negative economic data surprises...