2Q Earnings Growth Might Not Go Negative After All

But even if they stay in the black, they will be puny compared to 2018’s blowout.

This week starts earnings season, with the first companies reporting their returns for the second quarter. Let’s say expectations aren’t high. In fact, they are for a negative number overall in the earnings growth rate.

The analysts’ consensus, as FactSet reported, is for -3.0%, which would mark the second quarter in the red since the oil-related troubles of 2016’s second quarter. And it also would be a back-to-back negative quarter, paired with this year’s first period, which was down 0.3%. By negative, we mean earnings were less than in the quarter the year before.

But John Butters, the senior earnings analyst for FactSet, has pointed out that, over the past five years on average, the actual earnings growth rate has been 3.7 percentage points higher than the projected number.

If that’s the case, then 2019’s second quarter might well be in the black, up 0.7% or thereabouts.

At the start of the year, coming off a robust, double-digit-growth 2018, analysts expected a 6.5% increase for this year’s second quarter. Indeed, the results from last year were stunning, ranging from a low of 12.1% in the last quarter to a high of 19.2%.

Note that at the end of 2018, we were seeing a deceleration. That may well owe in part to the dwindling of the tonic that the tax cuts had on earnings.

Monday’s kickoff was led by Citigroup, which had a smart uptick of 6.5% from the year-before quarter. Part of the banking giant’s increase was owing to its investment in electronic trading platform Tradeweb. Another factor was its cost-cutting campaign.

Tuesday’s big names are two other large banks, JPMorgan Chase and Wells Fargo, as well as health care company Johnson & Johnson.

Worries abound for some previous profit machines. Chief among them: Apple, which is enduring the ebbing of its iconic iPhone’s popularity in the US, coupled with slowing sales in China because of the trade war.

 

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