The Q1 earnings season is now effectively behind us, as the Retail sector earnings reports are mostly out now. With results from 480 S&P 500 already out and another 15 index reports reporting results this week, we will have seen Q1 results from 495 index members by the end of this week. Costco (COST - Analyst Report), Best Buy (BBY - Analyst Report) and AutoZone (AZO - Analyst Report) are this week’s notable earnings releases.

The Q1 earnings season provided further confirmation of the all-around weak earnings picture. While an above average proportion of companies were able to beat consensus expectations, the growth challenge proved widespread and not just a function of the beleaguered Energy sector. Earnings growth remained in negative territory for the 4th quarter in a row, with the trend expected to continue in the current period as well. On the positive side, the dollar drag started fading and the magnitude of negative revisions for the current period turned out to be less severe relatively to other recent quarters.

Estimates for Q2 have faithfully followed the well-trodden path of previous quarters, as the chart below shows.

As negative as this revisions trend looks, it is nevertheless an improvement over what we had seen in the comparable period in the preceding earnings cycle. The improved commodity-price backdrop and the reduced dollar drag are some of the more plausible explanations for this development. But it is also likely that Q2 estimates had already fallen enough at the time when Q1 estimates were coming down and there is simply not that much need for further downward adjustments.

Whatever the reason for the lower negative revisions trend for Q2 estimates, it is nevertheless a potentially positive development, particularly if sustained over the coming months. We will have to wait till July to get a better read on this development after companies start reporting June quarter results and guide towards Q3 estimates. Current estimates for Q3 are showing essentially flat growth from the year-earlier level.

The chart below shows current quarterly earnings growth expectations for the index in 2016 Q1 and the following four quarters contrasted with actual declines in the preceding three quarters. As you can see, growth is expected to be negative in 2016 Q2 and barely in positive territory in the following quarter.

Q1 is on track to be the 4th quarter in a row of earnings declines for the index. But as you can see in the chart above, this trend of earnings declines is expected to continue into the second quarter and most likely into the following one as well.

Retail Sector’s Q1 Scorecard

At this stage in the reporting cycle, we have seen Q1 results from 83.7% of the retailers in the S&P 500 index. Total earnings for these retailers are up +2.5% from the same period last year on +5.6% higher revenues, with 69.4% beating EPS estimates and 50% beating revenue expectations.

Positive surprises are more numerous even for the Retail sector, as you can see in the right-hand side chart below.

The growth picture emerging from the left-hand side chart doesn’t look so bad, with earnings growth in positive territory and revenue gains tracking above historical periods. But a lot of that momentum is a function of non-department store results that came out earlier in this cycle, particularly from online vendors like Amazon (AMZN). The sector’s growth comparisons don’t look so good on an ex-Amazon basis, as the right-hand side chart below does.

Q1 Earnings Scorecard (As of Friday, May 20th)

We now have Q1 results from 480 S&P 500 members or 96% of the index’s total membership. Total earnings for these index members are down -6.9% from the same period last year on -1.1% lower revenues, with 70.4% beating EPS estimates and 55.6% beating revenue estimates. The percentage of companies that are able to beat both EPS and revenue estimates is tracking 45.6% at this stage.

The table below shows the current scorecard for these companies

As you can see (columns 2 & 3), the Q1 earnings season has come to an end for 11 of the 16 Zacks sectors, while another 4 sectors are past the 90% mark in their reporting tallies. The Retail sector has the most still to come at this stage with only 83.7% reported so far.

The last column of the above table, titled ‘price impact’, shows the average price impact of the earnings releases. The most positive reaction has been to the Transportation, Utilities, Construction and Consumer Staples sectors while the reaction to the Auto/Truck/Tire sector results has been the most negative of the major sectors.

The charts below compare the results thus far with what we have been seeing from the same group of 480 index members in other recent periods.

As referred to earlier, the two key takeaways from the results thus far are:

First, the growth challenge is not only very obvious, but also widespread. The Energy sector is no doubt dragging the reported growth pace quite a bit, but the growth comparison still remains unfavorable even if we exclude the reported Energy sector reports from the sample of reported results. The right-hand side chart below presents the growth picture on an ex-Energy basis.

Second, positive surprises are more numerous, particularly on the revenues side. The big driver of this is the low levels to which estimates had fallen ahead of the start of this earnings season. But as indicated earlier, the improving dollar is helping matters to some extent as well.

This incidence of more numerous positive surprises is visible in the ‘blended’ beats comparisons as well; ‘blended beats’ refer to companies that beat both revenues as well EPS estimates. At present, 45.6% of the 480 S&P 500 members that have reported results are beating both EPS and revenue estimates, which is better than what we saw from the same group of companies in the preceding quarter as well as the 4-quarter and 12-quarter averages.

Even the beleaguered Basic Materials and Industrial Products sectors have beat EPS and revenue estimates more often this time around compared to other recent periods. The proportion of Basic Material sector companies that have beat both EPS and revenue estimates in Q1 is 35.0%, which compares to 4-quarter and 12-quarter averages of 10% and 22.1%, respectively. The highest blended beat % are for the Construction, Conglomerates, and Aerospace sectors while the lowest is for Oil/Energy.

Tech Sector Results

Market participants found the Tech sector’s Q1 earnings performance to be disappointing, with a number of the bellwethers like Google’s parent Alphabet (GOOGL), Apple (AAPL), and others coming up short of estimates in their results and/or guidance.

Including all of the Tech sector reports that have come out already, we have Q1 results from 96.3% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Tech companies are down -5.4% on +0.8% higher revenues, with 67.3% beating EPS estimates and 56.4% beating revenue estimates. Excluding the Apple drag, total earnings for the rest of the sector would be up +0.8%.

This is weak performance from these Tech companies relative to what we have seen from the same group of companies in other recent periods, as the charts below show.

What this shows is that not only growth remains challenged, but fewer are able to beat expectations. In fact, positive revenue surprises are tracking more than 2 percentage points below the 4-quarter average and 7 percentage points below the 12-quarter average. Please note that the sector’s weak growth pace is primarily a function of tough comparisons at Apple. Excluding Apple, the sector’s Q1 earnings growth would be +0.8%.

Q1 Estimates As a Whole

Combining the actual results from the 480 S&P 500 members that have reported results with estimates for the still-to-come 20 members, total Q1 earnings are currently expected to be down -6.6% from the same period last year on -1.1% lower revenues. This will be the 4th quarter in a row of earnings declines for the index.

Energy is the big drag in Q1, as it has been in other recent periods, with total earnings for the sector expected to be down -107.8% from the same period last year on -31.5% lower revenues. Excluding the Energy sector, earnings growth for the remainder of the index would still be in the negative – down -1.3%. In total, 8 of the 16 Zacks sectors are on track for negative earnings growth in Q1, including Finance and Technology, the two biggest sectors in the index.

The table below presents the summary picture for 2016 Q1 contrasted with what companies actually reported in the 2015 Q4 earnings season.

Here is a list of the 96 companies reporting this week, including 15 S&P 500 members.