GLOBAL REPORTING SEASON REVIEW
Peter Ball, 12 May 2017
The global reporting season is drawing to an end with just 20% of companies left to report. Based on performance thus far, it is likely to go down as one of the strongest seasons in recent years. Earnings growth accelerated in both the US and Europe during the first quarter of 2017. While the US is on track to report earnings growth of 13.5%, earnings growth in Europe has accelerated to 23%, well above expectations of a 10% increase. Several sectors have been driving the majority of this growth including Energy, Materials, Financials and Technology. What made this even more impressive was that there were no market downgrades in the month leading up to the reporting season, which means expectations were much higher than usual.
Lacklustre revenue growth over recent years has meant that earnings growth has been primarily driven by costing cutting initiatives and share buybacks. However, revenue in the first quarter grew by 7.6% which marks the highest year-on-year increase since the fourth quarter of 2011. Again, this growth was broad-based with Energy by far the standout, helped by a much needed rebound in oil prices.
The technology sector has also been a particular highlight. Over 92% of tech companies have beaten the market’s earnings expectations. By comparison, 78% of all companies within the S&P 500 have reported earnings that were ahead of expectations. The strong results from the US tech sector has led to impressive share price performance. The sector has reversed its post-election sell off and is up 17.6% year-to-date making it the best performing US sector by a wide margin.
The broad-based growth seen in the first quarter reflects a sharp acceleration in economic growth that started in late 2016. While many have attributed this acceleration to Trump’s pro-growth policies, the recovery actually started over a month before the US election and would have likely continued regardless of who entered the White House. Many factors have played a key role in this rebound in growth but several in particular stand out. The drag on global growth from the plunge in oil prices has finally played out and commodity-based countries are now starting to recover. Historically low interest rates around the world are starting to have an impact on economic growth with a recovery in both business and consumer spending starting to emerge. Business spending in the US has rebounded, as evidenced by the jump in factory order growth and capital spending intentions. Most economies are near full employment and wage growth is starting to flow through. This has resulted in a sharp increase in consumer confidence over recent months and is a trend we expect to continue through 2017.