Q2 earnings season: healthy beats on low expectations
* Q2 earnings growth remains negative, but clearly ahead of consensus expectations
- 65% of Stoxx 600 companies (by market cap) have reported Q2 results so far
- Reported EPS is down by 7.8% vs. Q2 2015, but above low consensus expectations for a 21% decline
- Industrials and autos have been the largest and only contributors to total EPS growth
- Energy and financials remain the largest drag on EPS. Ex-energy & financials, Stoxx 600 EPS are up 3.8%
- Net beats at 22% are the highest since Q2 2015 and well above their long-term average of 11%
- 8 out of 10 major sectors are currently running ahead of consensus expectations, led by staples and industrials
- While EPS growth has been positive for only 2 out of 10 sectors, only 1 sector has a negative net beat ratio. This picture reflects the pessimism built into consensus expectations ahead of the season
* Sales and capex growth momentum remains negative, driven energy, materials and tech
- Quarterly sector data on sales and capex growth show a persistent decline in energy capex over past years and provide some hint of a slowdown in cyclical capex spending, with tech and media cutting capex sharply
* We think the auto cycle is about to roll over
- The auto cycle may be about to roll over as US car sales show clear signs of weakening. We think that European auto earnings have seen their peak in Q2 and that the market will further price weakening sales momentum
- Autos consensus EPS growth of 41% for 2016 is largely driven by substantial downward revisions to Volkswagen earnings in 2015. As Volkswagen EPS growth accounts for 67% of total autos earnings growth, a consensus figure ex Volkswagen would be -2.9% for 2016, instead of -1.7%
* Positive UK earnings revisions continue, strongly skewed towards export sectors
- UK EPS growth has been revised higher after the UK referendum, with a strong skew towards export-focused sectors, driving FTSE 100 vs. FTSE 250 net earnings revisions to a 4-year high