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Zacks Earnings Trends Highlights: JPMorgan, Citigroup and Wells Fargo

For Immediate Release

Chicago, IL – July 13, 2017 – Zacks Director of Research Sheraz Mian says, "Quarterly earnings for the Finance sector as a whole are expected to be up +4.6% from the same period last year on +1.7% higher revenues."

Bank Stocks in the Spotlight

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

• Bank earnings were very strong in the last earnings season, but Q2 estimates came down to reflect the unfavorable interest rate and capital markets backdrop.

• While Q2 earnings growth for the banking industry is expected to be below the year-earlier level, quarterly earnings for the Finance sector as a whole are expected to be up +4.6% from the same period last year on +1.7% higher revenues. This would follow +10.5% earnings growth on +5.2% higher revenues in Q1.

• For the S&P 500 Index as a whole, total Q2 earnings are expected to be up +5.6% from the same period last year on +4.5% higher revenues. Sectors with the strongest growth in Q2 include Energy, Technology, Aerospace, Construction and Industrial Products. Q2 earnings growth for the index would fall to +3.0% on an ex-Energy basis.

• Q2 Estimates came down since the quarter got underway, but the magnitude of negative revisions has been below other recent periods. Estimates came down for 10 of the 16 Zacks sectors since the start of the quarter, while estimates went up for 6 sectors in that time period, including Industrial Products, Transportation, Construction, Aerospace, Technology and Business Services.

Beyond Q2, total earnings for the S&P 500 index are currently expected to grow by +6.1% on +4.5% higher revenues in the September quarter and +9.7% on +5.2% higher revenues in Q4.

• For full-year 2017, total earnings for the index are expected to be up +7.4% on +4.1% higher revenues, which would follow +1% earnings growth on +2% higher revenues in 2016. Index earnings are expected to be up +11.4% in 2018 and +9.3% in 2019.

• The Energy, Technology and Finance sectors are the biggest earnings contributors in 2017 – 2017 earnings growth would be +4.7% on an ex-Energy basis.

Earnings growth for the Zacks Major Banks industry, which includes the money-center operators like JPMorgan (NYSE: JPM Free Report ), Citigroup (NYSE: C Free Report ) and Wells Fargo (NYSE: WFC Free Report ) that are reporting results Friday morning, is expected to be down -6% from the same period last year on +3% higher revenues. This would follow the group’s strong showing in Q1, when total earnings for the industry increased +19.4% on +5.9% higher revenues.

The industry’s actual growth will most likely be better than these expectations, but they are unlikely to be as strong as what we saw in Q1. The factors expected to weigh on the group’s Q2 profitability include lower treasury yields (since partly reversed), continued deceleration in loan growth, and an overall trough backdrop for the capital market and advisory businesses. Estimates for a number of these banks have come down lately to reflect these developments, but I suspect that they haven’t fallen enough to fully reflect the relatively softer ground realities.

With the Major Banks industry accounting for roughly 45% of all Finance sector’s earnings, this relatively soft earnings backdrop is weighing on expectations for the broader sector as a whole. Total Finance sector earnings for Q2 are expected to be up +4.6% from the same period last year on +1.7% higher revenues.

Q2 Expectations As a Whole

Total Q2 earnings for the S&P 500 index are expected to be up +5.6% from the same period last year on +4.5% higher revenues, with double-digit earnings growth from 5 sectors (Energy, Technology, Aerospace, Construction & Industrial Products). Energy has the biggest contribution to growth this quarter, the Q2 growth pace falling to +3% (from +5.6%) on an ex-Energy basis.

This trend of negative revisions ahead of the start of each reporting cycles is not new; we have been seeing this play out quarter after quarter for more than 3 years. That said, the revisions trend has been moving in a favorable direction over the last two quarters and that same trend is even more at play in Q2 estimates. What this means is that while estimates for Q2 have come down, they haven’t come down as much as would typically be the case by this time in other recent periods.

Unlike the year-over-year growth pace, the dollar amount of total earnings are expected to be in record territory in the coming quarters, particularly in the second half of the year.

The expected earnings total for Q2 at present is -2.1% below the all-time quarterly record level achieved in 2016 Q4. With actual results typically coming in better than pre-season expectations, we will likely see the final 2017 Q2 tally to exceed the 2016 Q4 record.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview . He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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