What trade war.
U.S. companies are on pace for one of the best earnings seasons in a decade, according to mid-term data from FactSet, with most firms appearing to have little or no concern for the impact of trade and tariffs on their bottoms lines over the coming months.
With just over half of the companies listed on the S&P 500 undefined reporting earnings for the three months ending in June, FactSet data shows that 83% have topped Street forecasts on profits, a figure that would represent the strongest performance since 2010 if the numbers hold until the end of the current season. Annual earnings growth is on pace to hit 21.3%, the second-best period (behind Q1 2018) in eight years. Around 73% of reporting companies have bested revenue forecasts, as well, FactSet said, with overall year-on-year growth of 9.3%.
The average earnings "beat", however, is just 2.5%, a figure that sits below the five-year average, although that was modestly offset by the fact the revenue beats are averaging 0.7%, a figure that tops the five-year average and suggests companies are gaining new customers and market share.
FactSet said that 70 of the 159 companies that have reported so far this year cited the word "tariff" in their earnings conference call with investors, a number that is notably higher than the previous four quarters, but noted that only 19 of those -- or 12% of the total reporting -- expressed concern that tariffs could lead to a "modest" or "negative" impact on near-term earnings. A similar number, 17, said the uncertainty surrounding the implementation of certain tariffs made it difficult to gauge their impact on earnings over the coming quarters.
"So we have not seen any changes in the U.S. customer behavior directly related to these new tariffs," FedEx Corp. (FDX) CEO Fred Smith told investors on June 19. "Now this is not really surprising especially since the commodities inflection make up only a very, very small portion of our U.S.-China revenues."
That said, more companies have issued negative earnings guidance (29) for the third quarter than those that are more bullish on the current three month period (14), even as the current arithmetic points to a 20% earnings growth rate for the next two quarters. Stock are also historically expensive, at least on a P/E basis, with the S&P 500 trading on a forward multiple of 16.7, a figure that is higher than both the five-year (16.2) and ten-year (14.4) average.
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Earnings from the so-called FAANG complex, however, have elicited the most market reaction, even as most of the companies in the collective topped second quarter forecasts.
Facebook Inc. (FB) , for example, beat Street earnings estimates by 2 cents a share with a $1.74 bottom line, but narrowly missed on revenue ($13.23 billion versus $13.36 billion) and spooked investors with warnings about rising costs and thinning profit margins, sending the stock into a historic tailspin that loped a single-day record $119 billion from its market value last week.
Netflix Inc. (NFLX) , too, was hit hard by weaker subscriber numbers and the prospect of rising costs, even as it beat the Street by 6 cents on earnings (85 cents v 79 cents per share) and grew revenues by 42 to $13.23 billion.
Amazon Inc. (AMZN) , by contrast, smashed its second quarter estimate with earnings of $5.07 per share on sales of $52.89 billion. Alphabet Inc, (GOOGL) , as well, impressed with earnings of $11.75 a share that beat the $9.59 forecast on sales of $32.66 billion that rose 25% from the same period last year
Apple Inc. (AAPL) is set to report its fiscal third quarter earnings after the close of trading on Tuesday in what could be the "rubber match" for the FAANG sector, with FactSet estimates suggest the Cupertino, Calif.-based group to report third quarter EPS of $2.16 per share, a 29% increase from the same period last year, on sales of $52.3 billion.
The iphone maker's update comes amid another busy week for corporate reporting, with earnings expected from 140 companies listed on the S&P 500 including Caterpillar Inc. (CAT) , Lowe's (L) . Pfizer Inc. (PFE) , Proctor & Gamble Co. (PG) , Telsa Inc. (TSLA) , CBS Corp. (CBS) and Warren Buffet's Berkshire Hathaway Inc. (BRK.A)