Q3 Earnings Season: Revenue Weakness Stands Out

This is the last major reporting week of the Q3 earnings season, with over eleven hundred companies reporting results, including 106 S&P 500 members. By the end of this week, we will have seen Q3 results from almost 90% of the index’s total membership, with the Retail sector as the only one with any sizable number of reports still awaited.  

It is hard to characterize this earnings season as anything but weak – the overall growth picture remains challenged, with companies struggling to beat lowered top-line expectations and estimates for the current period coming down at an accelerated pace. At this stage in the reporting cycle, the ratio of companies beating revenue estimates is the lowest that we have seen in the recent past.

The all-around revenue weakness notwithstanding, the growth picture has improved ever so slightly over the past week. The Tech sector has surprised with stronger results, with Q3 numbers from the sector not only coming in better relative to pre-season expectations, but also relative to sector’s performance in other recent periods. The comparisons to other recent periods for the sector remain favorable even looked at an ex-Apple (AAPL – Analyst Report) basis.

Tech aside, the Medical sector has done reasonably well as well and early reports from the Retail sector are also encouraging. We should point out, however, that the bulk of the early Retail sector reports are weighted towards the online operators and restaurant companies, with results from the traditional retailers still awaited. The better than expected results from Exxon (XOM – Analyst Report) and Chevron (CVX – Analyst Report), largely on the back of strength in their downstream operations, has helped improve the Energy sector’s aggregate results as well, though the sector’s year-over-year comparisons still remain ugly.

The bottom line is that the earnings picture still remains weak, but it isn’t as bad as it was shaping up a few days earlier. Instead of ‘extremely weak’, the Q3 earnings picture is shaping up to be about in-line with what we saw in the preceding quarter, which was a weak reporting season itself.

Q3 Scorecard (as of Friday, October 30th)

With Q3 results from 341 S&P 500 members already on the books, total earnings are down -1.0% on -4.9% lower revenues, with 71.3% beating EPS estimates and only 42.7% coming ahead of top-line expectations.

The table below provides the current Q3 scorecard:
 

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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