Q2 Earnings Preview
Q2 earnings season could potentially look a lot like Q1. The Thomson-tracked consensus is calling for a 3% year-over-year decline in S&P 500 earnings for the second quarter, dragged down once again by the energy sector and a strong U.S. dollar. We believe this earnings estimate can be exceeded due to the improving economic growth in the U.S. and Europe during Q2, and the low bar set by an above-average 4:1 ratio of negative-to-positive preannouncements (long-term average back to 1995 is 2.7) and recent earnings trends where the average upside “beat” over the past 16 quarters is 4%. An upside in-line with prior quarters would leave earnings up by 1 – 2% compared with Q2 2014, similar to the Q1 result (+2%).