Market Wrap-up for June 9 - Earnings Season: Themes and Takeaways

In light of this earnings season coming to an end, we’re taking the time to highlight the biggest themes and most important takeaways following the latest batch of corporate performance results. To aid in this recap, we’re leaning on the most recent weekly earnings insight report published by FactSet (FDS ), the industry leader in providing financial information and analytics.

Thus far, the latest blended earnings growth rate for U.S. firms stands at a paltry 0.7%, which marks the lowest quarterly earnings growth rate since Q3 2012 when the figure stood at negative 1.0%. These lackluster results are further showcased by the fact that while 71% of firms have reported earnings above the mean estimate, only 45% have reported sales above the mean estimate.

At the sector level, energy companies have seen the largest year-over-year decrease in revenues (-40%) in light of collapsing crude oil prices. On the other hand, the health care sector has reported the highest growth (7%) in sales for the quarter. With these revenue growth figure in mind, if energy names were excluded, then the S&P 500’s blended revenue growth rate would jump from a negative 2.9% to a positive 2.4%, illustrating the sheer magnitude of that sector’s under-performance.

Below, we highlight a few of the key themes that have permeated this quarter’s earnings reports:

• The U.S. economy continues to lead the way for the developed world, though robust growth in China has been a key tailwind for domestic companies.
• A stronger U.S. dollar has served as a headwind for many multi-national firms and this theme will remain in play especially as the Fed gets closer and closer to raising rates.
• The impact of lower oil prices has varied by industry and company, though it’s undeniable that the energy sector’s slump as a whole has dragged on the broad market’s valuation due to the dip in revenues.

Looking ahead to some key points:

• With regards to the broad U.S. market, analysts are not expecting positive year-over-year revenue growth until 2016.
• Profit margins are expected to continue rising in the second half of 2015, which should help in lifting profitability amid sluggish revenue growth expectations.
• The S&P 500’s current 12-month forward P/E ratio stands at 16.9, which is above the 5-year average of 13.8 as well as the 10-year average of 14.1.

The lesson here is recognizing the importance of learning to read and interpret earnings reports without injecting your own biases; be sure to stay up to date with the latest dividend and earnings news.

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