CHICAGO, April 25, 2014 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "Our initial call about the Q1 earnings season being extremely weak and outright mediocre has turned out to be a bit premature"

An Improving – But Still Weak – Earnings Picture

Excluding the Finance sector as a whole, total earnings for the S&P 500 companies that have reported results would be up +6.9% on +4.8% higher revenues, which is actually better than what we have seen from the same group of ex-Finance companies in other recent quarters. This may not continue through the end of the earnings season, but it's hard to overlook at this stage at least.

Key Points

• Total earnings for the 204 S&P 500 companies that have reported results are up 2.9%, with 67.3% beating earnings expectations. Revenues for these companies are up +3.5%, with a revenue 'beat ratio' of 44%.
• The performance from these companies, particularly the earnings growth and revenue beat ratio, is weaker than what we have seen from this same group of companies in recent quarters.
• The Finance sector shifted gear this quarter, becoming a drag on aggregate growth after being a growth driver for many quarters. Bank of America is a big reason for the sector's weak growth this quarter, but the sector's total earnings growth would be weak relative to other recent quarters even after excluding Bank of America from the numbers.
• Excluding the Finance sector, total earnings for the rest of S&P 500 companies that have reported Q1 results would be up +6.9% on +4.8% higher revenues and modestly higher margins. This is actually broadly in-line with the growth performance we have been seeing from this ex-Finance cohort in recent quarters as well. Gilead's (Nasdaq:GILD-Free Report) strong results and its impact on the Medical sector has materially helped this ex-Finance growth picture.
• Apple (Nasdaq:AAPL-Free Report) and Facebook (Nasdaq:FB-Free Report) had strong Q1 results, though overall results for the Technology sector are not materially better than what we had seen in the preceding quarter. Total earnings for the 66.1% of the sector's total market capitalization that have reported results are up +8.3% on +4.9% higher revenues, with 66.7% of the companies beating EPS expectations and 59.3% beating revenue estimates.      
• The composite Q1 picture for the S&P 500, combining the actual results from the 204 companies with estimates for the 296 still to come, is for earnings to down -0.9% from the same period last year, on +2.2% higher revenues and 29 basis points in lower margins. Sequentially, total earnings for the S&P 500 are expected to be down -4.6%, with the overall level of total earnings for the index the lowest in a year.
• The Q1 earnings season is expected to be the low point of this year's earnings picture, both in terms of total earnings as well as the growth rate. Total quarterly earnings reached an all-time record in 2013 Q4, but are expected to fall short of that level in 2014 Q1. Expectations for the coming quarters reflect a strong ramp up, with each of the following three quarters a new all-time record.
• Guidance has overwhelmingly been negative in recent quarters and we are seeing the same trend in place with the Q1 reports as well. Continuation of that trend through the rest of this earnings season will result in the by-now all-too-familiar negative revisions to estimates for 2014 Q2.
• Total earnings in Q2 are currently expected to be up +4.3%, followed by growth rates of +6.5% in Q3 and +9.0% in Q4. For the full year, total earnings are expected to be up +7.8% in 2014 and +12.2% in 2015.
• The bottom-up 'EPS' estimate for the S&P 500 for 2014 currently stands at $115.54, while the top-down estimate for the same is currently at $116.33. For 2015, the bottom-up estimate remains $129.53, with the top-down estimate from Wall Street strategists currently at $125.

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