Hennion & Walsh Trending

As we move deeper into earnings season for the second quarter of 2019, the second quarter in a row where many are expecting a dramatic slowdown in earnings growth, FactSet estimated on July 3, 2019 that the earnings growth rate for the S&P 500 Index will be -2.6% for the second quarter of 2019. It is worthwhile to note that the actual earnings growth rate for the first quarter was essentially flat vs. an estimated -4.2% earnings growth rate. We believe that the actual earnings growth for the second quarter will also come in above current expectations. To this end, with 21 of the companies in the S&P 500 reporting actual results for the 2nd quarter as of July 3, 2019, 18 of these companies have reported positive earnings per share (EPS) surprises and 15 of these companies have reported positive revenue surprises.

Below are some noteworthy “beats”, “matches” and ”misses” from earnings reports thus far for the second quarter of 2019, across multiple sectors, which have been released according to Zacks. Based on this initial, limited sampling of companies, it is fair to suggest that second quarter earnings season is certainly off to an impressive start.

Pepsico, Inc. (Sector: Consumer Staples)
Pepsi “beat” with reported 2nd quarter earnings per share (EPS) of 1.54 vs. an EPS estimate of 1.49.

Prologis, Inc. (Sector: Real Estate)
Prologis, an owner, operator and developer of industrial real estate including distribution facilities, narrowly “beat” with reported 2nd quarter earnings per share (EPS) of 0.77 vs. an EPS estimate of 0.76.

Delta Air Lines Inc. (Sector: Industrials)
Delta “beat” with reported 2nd quarter earnings per share (EPS) of 2.35 vs. an EPS estimate of 2.28.

Fastenal Co. (Sector: Materials)
Fastenal, which sells industrial and construction supplies, narrowly “missed” with reported 2nd quarter earnings per share (EPS) of 0.36 vs. an EPS estimate of 0.37.

Domino’s Pizza Inc. (Sector: Consumer Discretionary)
Domino’s “beat” with reported 2nd quarter earnings per share (EPS) of 2.19 vs. an EPS estimate of 2.00.

Wells Fargo & Co. (Sector: Financials)
Wells Fargo “beat” with reported 2nd quarter earnings per share (EPS) of 1.30 vs. an EPS estimate of 1.16.

Citigroup (Sector: Financials) – 7/15/19
Citigroup “beat” with reported 2nd quarter earnings per share (EPS) of 1.83 vs. an EPS estimate of 1.78.

Johnson and Johnson (Sector: Health Care)
J&J “beat” with reported 2nd quarter earnings per share (EPS) of 2.58 vs. an EPS estimate of 2.42.

Bed Bath & Beyond Inc. (Sector: Consumer Discretionary)
Bed Bath & Beyond “beat” with reported 2nd quarter earnings per share (EPS) of 0.12 vs. an EPS estimate of 0.08.

While we believe that we have hit peak earnings growth, we do not believe that we have hit peak earnings yet in this economic cycle. This is consistent with our overall “Slowing but Growing” theme at Hennion & Walsh for 2019. Earnings growth is still likely in the remaining quarters of 2019, though at levels well-below what was experienced in 2018, as corporate earnings should still benefit from the lowering of the corporate tax rate from 35% to 21% and a confident consumer with additional disposable income to spend.

Our contention above was validated to a degree recently by strong retail sales data reports showing that retail sales rose by 0.4% during the month of June from the prior month, higher than the expected growth rate of 0.1%. Compared to June of last year, retail sales increased by 3.4%. This is important as consumer spending still accounts for approximately 70% of gross domestic product (GDP) in the United States.

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Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program and Hennion & Walsh currently has allocations within certain SmartTrust® Unit Investment Trusts (UITs) consistent with several of the portfolio management ideas for consideration cited above.