The stocks of the S&P 500 companies are in for a stiff challenge this coming earnings season, which is the first comparative quarter since the Trump tax cuts.
Wall Street expects earnings for S&P 500 stocks to decline 2% in Q1, marking the first retreat since Q2 2016. However, the revenue is seen increasing by 5%. The managers agree with Wall Street expectations, as 79 S&P 500 companies have issued negative EPS guidance and 28 S&P 500 companies have issued positive EPS guidance.
The forward 12-month P/E ratio for the S&P 500 is 16.3. This P/E ratio is below the 5-year average (16.4) but above the 10-year average (14.7).
Tech as a sector is expecting earnings decrease of 6.1% YoY in Q1 2019, a lot of which could be Apple since with the reconfigured Tech sector, Apple is now 20% of the sector by market cap, and the company is expecting 3% lower EPS for 2019. However, Microsoft, Amazon, and Facebook are all expecting positive year-on-year earnings growth, and in the case of Microsoft and Amazon, 15% and 39% YoY EPS growth respectively, which are well above “tech sector” growth.
Also, what is interesting is that Exxon now has a larger market cap than JPMorgan. Not by much, but it tells you how far Financials have sunk the last 15 months.
In addition to the hangover from Trump tax cuts weighing down earnings, margin compression is hitting a variety of sectors. Rising input costs, like higher wages, are affecting bottom lines.
However, some S&P 500 stocks will be hit harder than others. Health care stocks are seen as being the biggest winners, while analysts see energy stocks like the biggest losers.
Constellation Brands reported better-than-expected earnings
Constellation Brands reported better-than-expected earnings in fourth-quarter fiscal 2019.
Beer sales carried the upbeat report for its fiscal fourth quarter, which came a day after the company said it would be selling some of its inexpensive wine brands.
Constellation said comparable earnings for the three months ending in February, the company’s fiscal fourth quarter, came in at 1.84 USD per share, down 3.15% from the same period last year but firmly ahead of the Street consensus forecast of 1.72 USD per share. The group sales rose by 2% to 1.797 billion USD, again beating analysts’ forecasts of 1.73 billion USD.
The company announced Wednesday that it has agreed to sell about 30 brands from its wine and spirits portfolio to E. & J. Gallo Winery for 1.7 billion USD. However, the amount is lower than targeted by the company, which had hoped to fetch as much as 3 billion USD for its wine business. The proceeds from the deal will pay down the company’s debt.
Now Constellation will be focusing on its higher-end wine brands, which have more growth opportunities. For the first time, it has sponsorship plans for several of its wine brands for the PGA Tour, U.S. Tennis Association and several NFL teams.
Looking into the 2020 fiscal year, Constellation said its sees comparable earnings in the region of 8.50 USD to 8.80 USD per share, with operating income from its beer division rising between 7% and 9%. Wine and Spirits, however, will likely see net sales declines of around 25% to 30% with a larger decline in operating income of between 30% and 35%.
Delta Air Lines raised its profit outlook
Delta Air Lines raised its profit outlook and extending a lucrative credit-card partnership with American Express Co.
Strong demand from high-paying business passengers will help push first-quarter earnings ahead of expectations, Delta said in a regulatory filing Tuesday. The company also scored a long-term boost, saying the AmEx deal will more than double the airline’s credit-card revenue to almost 7 billion USD by 2023.
The carrier’s upbeat tone on travel trends eased concerns of a business-cycle slowdown, said Savanthi Syth, an analyst at Raymond James Financial, and contrasted with reports of sagging leisure travel by Southwest Airlines and JetBlue Airways. Delta will set the tone for the airline industry’s earnings season when it publishes final results April 10, the first report among major US carriers.