I am sure you know by now that the picture emerging from the Q1 earning season is one of widespread weakness, particularly on the revenues side. Growth is anemic, most companies are coming short of revenue estimates and guidance continues to be on the weak side, causing estimates for the current period to come down.

The strong U.S. dollar has widely been blamed for the Q1 weakness. The ‘dollar scapegoating’ makes sense, particularly when we compare the results of large-cap companies with small-cap operators. The large-cap companies in the S&P 500 index have substantial exposure to currency issues. After all, they earn an estimated 40% of their revenues from beyond the U.S. shores. Smaller companies aren’t entirely focused on the domestic market either, but they have a lot less international exposure.

You can see this divergence in the contrasting Q1 revenue performance of the S&P 500 and Russell 2000 companies. While an unusually high proportion of S&P 500 members are coming short of consensus revenue estimates, the issue isn’t that pronounced with the Russell 2000 members. We should keep in mind however that while we are quite further along in the reporting cycle for the large-cap index (68.7% of S&P 500 members have already reported results, as of April 30th), we are still at a relatively early stage for the small-caps (37.5% of Russell 2000 members have reported results).

The S&P 500 Scorecard

Including this afternoon’s results from the likes of Gilead (GILD - Analyst Report), Visa (V - Analyst Report), Expedia (EXPE - Analyst Report) and others, we now have Q1 results from 344 S&P 500 members that combined account for 76% of the index’s total market capitalization. Total earnings for these 344 companies are up +5.9% from the period last year, with 66.1% beating earnings estimates. Total revenues for these companies are down -3.5% from the same period last year, with only 38.8% beating top-line estimates.

Here is the current scorecard for the 344 S&P 500 companies that have reported results, as of 5:30 Eastern on April 30th.
 

This is weak performance compared to what we have seen from the same group of companies in other recent quarters, as the side-by-side charts below shows.



The left-hand side chart compares the earnings and revenue growth rates for these 344 S&P 500 members with what these same companies reported in the preceding quarter and the average growth rates for these companies in the preceding four quarters (the 4-quarter average is through 2014 Q4). The right-hand side chart does the same comparison for these 344 S&P 500 members, but compares only the earnings and revenue beat ratios.

Here are the takeaways from looking at these comparison charts

1. The earnings growth rate (+5.9%) is decent enough, but is weaker relative to other recent periods. The earnings growth comparison becomes extremely lopsided once the Finance sector’s strong growth numbers are excluded (the chart below shows the Q1 growth comparison with and without Finance
2. The revenue growth rate -3.5%) is notably below what we saw from this group of companies in Q4 (+1.2%) as well as in the 4-quarter average (+3%).
3. The earnings beat ratio is about in-line with the recent past.
4. The revenue beat ratio is notably below what these same companies reported in the preceding as well as 4-quarter average.

The Russell 2000 Scorecard

Including all of the reports after the market close, we now have Q1 results from 748 Russell 2000 members that combined account for 43.7% of the small-cap index’s total market capitalization. Total earnings for these Russell members are up +15% from the same period last year on +5.9% higher revenues, with 43.7% beating earnings estimates and 35.4% beating revenue estimates.

Here is the current scorecard for the 745 Russell 2000 companies that have reported results already

This is modestly better performance than we have seen from the same group of 432 Russell 2000 members in other recent periods, as the charts below show.

The most notable takeaway from the Russell 2000 comparison chart above is the revenue beat ratio. Revenues are weak both for the S&P 500 as well as the Russell 2000, but the magnitude of weakness is notably higher for the large-cap index. The chart below focuses solely on the beat ratio by doing a side-by-side comparison of beat ratios for the two indexes.

The Bottom line

The relatively favorable reporting season for the Russell 2000 members does not mean that the overall earnings picture isn’t weak – it is fairly weak. While a number of the Russell members will eventually generate a lot of earnings and make it to the large-cap index at some stage in the future, but the magnitude of their current earnings pale in comparison to what the large-caps make. All of the Russell 2000 members combined will earn roughly equal to what Apple (AAPL - Analyst Report) earned on its own in Q1. That said, the small-caps do have an advantage in limited exposure to the strong U.S. dollar.

For a detailed look at the Q1 earnings season, please check out our weekly Earnings Trends report.