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Q2 Earnings Season Scorecard

Including this morning's reports from Bank of America, Morgan Stanley, and others, we now have Q2 results from 38 S&P 500 members. Total earnings for these 38 index members are up +5.6% from the same period last year on +8.3% higher revenues, with 86.8% beating EPS estimates and 68.4% beating revenue estimates.

This is better than expected performance for this group of 38 S&P 500 members, with the EPS beats percentage of 86.8% the highest for this group in the last 20 quarters. This is notable as unlike many other recent quarters estimates for Q2 hadn't dropped that much.

Looking at Q2 as a whole, S&P 500 earnings are expected to decline -9.4% from the same period last year on -0.5% lower revenues.

A big part of the declines are due to the Energy sector whose Q2 earnings and revenues are expected to decline -48.8% and -27.8%, respectively. Excluding the Energy sector drag, Q2 earnings for the rest of the index would be down only -3.5% on +3% higher revenues.

While index earnings are currently expected to modestly decline in 2023 Q3 as well, the growth pace would be positive had it not been for the Energy sector drag.

Today's Featured Analyst Reports 

Shares of Roche Holding (RHHBY) have modestly outperformed the Zacks Large Cap Pharmaceuticals industry over the year-to-date period (+1.6% vs. +0.2%). Company’s new drugs, namely Ocrevus, Hemlibra, Evrysdi and Tecentriq, recorded growth and should maintain momentum. The uptake of the new eye drug Vabysmo (launched at the beginning of 2022) has been outstanding and is already one of the top growth drivers for the company.

The company’s efforts to develop new drugs to combat the decline in legacy drugs are encouraging. However, performance so far in the year has been ordinary, as significantly lower COVID-19 product sales have impacted the top line.

Sales are likely to be impacted further due to the expected sharp decline in sales of COVID-19 products of roughly CHF 5 billion. Also, competition from biosimilars for established cancer medicines like Avastin, MabThera/Rituxan and Herceptin continues to drag down sales.

Share of Fomento Económico Mexicano (FMX) have outperformed the Zacks Beverages - Soft drinks industry over the past year (+83.3% vs. +14.3%). The company’s top and bottom-line improved year over year on strength across segments and improved operating income.

Revenues improved on gains across all business units resulting from effective growth strategies and robust demand across markets. The company’s digital initiatives and business expansion endeavors have also been aiding results. Its efforts to expand in the U.S. specialized distribution segment bodes well. The company displays strong financial flexibility.

However, FEMSA continued to witness operating margin decline due to contraction at Proximity, Health and Envoy Solutions divisions. Supply-chain disruptions and higher raw material costs hurt results.

Shares of AMD have outperformed the Zacks Electronics - Semiconductors industry over the year-to-date period (+82.6% vs. +57.4%). The company is witnessing strong demand for its products in industrial, vision and health care, test and emulation, communications, aerospace and defense, and automotive end-markets. Embedded segment reported strong growth.

For second quarter of 2023, AMD expects to witness growth in Embedded segment, partially offset by a decline in the Client, Gaming and Data Center segments on a year-over-year basis. AMD is benefiting from strong product portfolio and acquisitions including Xilinx and Pensando, which has diversified its business.

Robust adoption of EPYC processors by North American hyperscalers has been a tailwind. Alliances with Amazon, Microsoft, Baidu and JD.com augment business prospects. However, stiff competition from NVIDIA and Intel is a concern.

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