The new reporting season approaches amid continuing trade tensions between the US and China, as well as uncertainty for global economic growth. For Q2 2019, the estimated earnings decline for the S&P 500 enterprises is -2.6%, which will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016.
However, the latest analysis from the British multinational investment bank Barclays, China tariffs may only spark a “relatively modest” decline in S&P 500 earnings. Thus, according to the analysts, the Sino-American trade war may not have such a dramatic effect.
“We estimate that while the effect on  S&P 500 (^GSPC) earnings is relatively modest at ~2%, there is substantial variation across sectors, with Consumer Discretionary, Information Technology and Industrials the most affected”, wrote Barclays analysts Maneesh Deshpande and Emmanuel Cau in a note to clients. “The Consumer Discretionary sector could see a more than 7% ding to its 2019 earnings per share, while Information Technology, faces a 6% effect”, adds the analysis.
Aside from Barclays’ analysis, S&P 500 earnings estimates have been coming down in recent weeks. For the third quarter, Wall Street is now expecting a 0.3% decline in year-over-year earnings growth, according to FactSet, compared to a prior forecast of a 0.2% gain. The sector that is expected to post the largest decline in earnings is Information Technology.
The trend of flat to negative growth is expected to persist through the September quarter, with current consensus estimates looking for positive growth resuming in the last quarter of the year. But Q4 is still far from away and a lot can happen between now and then
Last week already saw earning statements of Nike and Micron Technology, but the big banks come around to report June-quarter results on July 16, when we will have seen such Q2 results from almost two dozen S&P 500 members already.
Nike misses on earnings for the first time since 2012
Nike’s quarterly earnings fell short of Wall Street’s expectations for the first time since 2012, yet some analysts still think the stock is worth buying.
Nike sold more sneakers and sports gear during the fiscal fourth quarter than Wall Street expected, helping to boost revenues by 4% to just over 10 billion USD.
Its earnings, however, missed analysts’ expectations by a few pennies a share. Nike earned 62 cents a share on an adjusted basis during the three months ended May 31, short of Wall Street’s forecast for 66 cents a share, according to average analysts’ estimates.
The revenues for the Nike brand, which excludes Converse merchandise, jumped by 10% from the same quarter last year to 9.7 billion USD. Converse sales were about flat at 491 million USD.
The total sales in North America, excluding fluctuations in currency rates, were up 8% to 4.17 billion USD. Sales in the China region surged 22% to 1.70 billion USD.
Nike has struggled more recently to grow sales in its home turf as rivals in the US like Adidas and Lululemon — and smaller up-start brands like Outdoor Voices and Rhone — have threatened to take market share with their athleisure footwear and clothes.
Micron Technology beat analysts’ expectations in earnings report
Shares of memory and storage company Micron rose as much as 10% after-hours Tuesday after the company beat analysts’ expectations for the third quarter of its 2019 fiscal year, which ended on May 30.
Revenue declined almost 39% year over year in the quarter, Micron said in a statement. The revenue amounted to 4.79 billion USD, compared to 4.69 billion USD expected by analysts.
Micron’s strong performance for the quarter shows it was able to grow despite bubbling trade tensions between the US and China. Huawei, which has been caught in the middle of the US-China trade war, represented 13% of Micron’s revenue in the first six months of its 2019 fiscal year, according to the previous earnings release. Several chipmakers, including Qorvo and Skyworks, have lowered guidance after the US imposed restrictions on how US companies could do business with Huawei.
Sales of DRAM and NAND products were both hit by the Huawei restrictions in the quarter. Had the restrictions not been imposed, Micron would have come in at the high end of its revenue guidance. In the quarter Micron wrote down 40 million USD worth of inventory related to Huawei.