Second-quarter earnings season isn’t turning out to be as bad as analysts expected. Some companies have managed to increase revenue significantly, and some have improved their gross margins. A select few have done both.
First, let’s see how earnings are measuring up for the S&P 500 SPX, +1.60%. A month ago, analysts polled by S&P Global Market Intelligence expected weighted aggregate second-quarter earnings per share to increase from a year earlier for only three of the benchmark index’s 11 sectors: financials, health care and industrials.
Here are the current estimates through Aug. 7, as we approach the end of second-quarter earnings season, showing how they have improved for all sectors from a month earlier:
| S&P 500 sector | Q2 earnings change estimate - Aug. 7 | Q2 earnings change estimate - July 7 |
| Financials | 9.1% | 4.3% |
| Health Care | 8.4% | 2.0% |
| Real Estate | 6.8% | -9.2% |
| Consumer Staples | 1.0% | -0.7% |
| Information Technology | 0.6% | -4.4% |
| Consumer Discretionary | -2.6% | -3.8% |
| Utilities | -8.1% | -6.8% |
| Industrials | -8.5% | 0.2% |
| Energy | -13.5% | -4.5% |
| Materials | -18.6% | -20.5% |
| Communication Services | -38.6% | -42.5% |
| S&P 500 Index | 0.8% | -1.7% |
| Source: S&P Global Market Intelligence | ||
So five sectors are now expected to show improved EPS, up from three, and the entire S&P 500 Index is expected to show a slight improvement.
Sales, gross margins
The sector numbers for earnings per share are useful, but even they can be skewed by one-time events, as we can see with the numbers for the communication-services sector: AT&T T, +0.92% reported second-quarter net income available to common shareholders of 51 cents a share, down from 81 cents a year earlier. However, EPS for the most recent quarter included 38 cents in one-time items, mainly related to the company’s acquisition of Time Warner in June.
When screening companies during earnings season, it might be more useful to look at increases in sales and then at gross profit margins. A company’s gross margin is its sales, less the cost of goods sold, divided by sales. It is a measure of profitability for the company’s main business of providing goods and services. It doesn’t reflect overhead costs or financing activity. But it gives an indication of pricing power. If a company’s sales are increasing while the gross margin is narrowing, it could mean the company is being forced to offer heavier discounts to protect its market share. A widening margin while sales are increasing is a good sign.
There is, of course, no perfect stock screen — you have to be very careful with any list and then do your own detailed research of any company that interests you.
The following list doesn’t include banks and insurance companies, for which gross margin figures are usually not available and not useful. Those industries have their own profitability measures.
“Earnings season” isn’t as cut-and-dry a period as investors might wish it to be, because so many companies have fiscal schedules that don’t match the calendar. As of the market close Aug. 7, 85% of the S&P 500 had reported results for fiscal quarters ended May 25 or later.
Among those companies, here are the 20 that increased sales the most, while also expanding their gross margins from a year earlier.
First, sales and sales per share:
| Company | Ticker | Sales - most recently reported quarter ($mil) | Sales -year-earlier quarter ($mil) | Increase in sales | Sales per share - most recently reported quarter | Sales per share - year-earlier quarter | Increase in sales per share |
| Vornado Realty Trust | VNO, +1.63% | $3,141 | $555 | 466% | $16.44 | $2.90 | 466% |
| Qualcomm Inc. | QCOM, +2.16% | $9,635 | $5,577 | 73% | $7.83 | $3.77 | 108% |
| CVS Health Corp. | CVS, +1.58% | $63,431 | $46,708 | 36% | $48.72 | $45.88 | 6% |
| SL Green Realty Corp. | SLG, +1.82% | $372 | $300 | 24% | $4.47 | $3.25 | 38% |
| Jefferies Financial Group Inc. | JEF, +1.48% | $1,504 | $1,244 | 21% | $4.81 | $3.49 | 38% |
| Ansys Inc. | ANSS, +4.31% | $369 | $306 | 21% | $4.31 | $3.56 | 21% |
| Royal Caribbean Cruises Ltd. | RCL, +2.42% | $2,807 | $2,338 | 20% | $13.36 | $11.00 | 21% |
| Amazon.com Inc. | AMZN, +1.93% | $63,404 | $52,886 | 20% | $126.05 | $105.77 | 19% |
| Fortinet Inc. | FTNT, +3.56% | $522 | $441 | 18% | $2.98 | $2.54 | 17% |
| United Technologies Corp. | UTX, +1.75% | $19,650 | $16,704 | 18% | $22.75 | $20.89 | 9% |
| MarketAxess Holdings Inc. | MKTX, +0.88% | $125 | $108 | 16% | $3.31 | $2.86 | 16% |
| CF Industries Holdings Inc. | CF, +2.85% | $1,502 | $1,300 | 16% | $6.76 | $5.53 | 22% |
| Alexandria Real Estate Equities Inc. | ARE, +1.43% | $376 | $326 | 15% | $3.38 | $3.19 | 6% |
| Celgene Corp. | CELG, +1.12% | $4,378 | $3,825 | 14% | $6.02 | $5.22 | 15% |
| Paccar Inc. | PCAR, +1.59% | $6,636 | $5,802 | 14% | $19.08 | $16.46 | 16% |
| Alexion Pharmaceuticals Inc. | ALXN, +2.47% | $1,194 | $1,047 | 14% | $5.29 | $4.70 | 13% |
| Chipotle Mexican Grill Inc. | CMG, +2.15% | $1,434 | $1,267 | 13% | $50.68 | $45.34 | 12% |
| ResMed Inc. | RMD, +1.69% | $705 | $624 | 13% | $4.87 | $4.33 | 13% |
| Merck & Co. Inc. | MRK, +0.47% | $11,679 | $10,343 | 13% | $4.51 | $3.84 | 18% |
| Duke Realty Corp. | DRE, +1.65% | $237 | $211 | 13% | $0.65 | $0.58 | 13% |
| Source: FactSet | |||||||
You can click on the tickers for more about each company, including news, profiles and earnings results.
Sales per share are also shown, because this figure may differ significantly from raw revenue if a company’s share count has changed. For example, Qualcomm’s QCOM, +2.16% average share count was down 17% year-over-year from stock buybacks, increasing the per-share figure. CVS’s CVS, +1.58% share count increased because it issued stock to purchase Aetna in November, so its sales per share increased only 6%, while revenue was up 36%. For Amazon.com AMZN, +1.93%, the average share count increased less than 1%, but it was enough to make the percentage increase in sales per share slightly lower than the increase in raw revenue.
Here’s how quarterly gross margins improved for the group:
| Company | Ticker | Gross income margin - most recently reported quarter | Gross income margin - year-earlier quarter |
| Vornado Realty Trust | VNO, +1.63% | 89.52% | 39.21% |
| Qualcomm Inc. | QCOM, +2.16% | 79.06% | 57.61% |
| CVS Health Corp. | CVS, +1.58% | 18.87% | 15.42% |
| SL Green Realty Corp. | SLG, +1.82% | 50.87% | 41.07% |
| Jefferies Financial Group Inc. | JEF, +1.48% | 88.19% | 86.52% |
| Ansys Inc. | ANSS, +4.31% | 87.69% | 85.63% |
| Royal Caribbean Cruises Ltd. | RCL, +2.42% | 33.52% | 33.02% |
| Amazon.com Inc. | AMZN, +1.93% | 42.69% | 42.08% |
| Fortinet Inc. | FTNT, +3.56% | 70.27% | 69.18% |
| United Technologies Corp. | UTX, +1.75% | 26.78% | 25.92% |
| MarketAxess Holdings Inc. | MKTX, +0.88% | 87.70% | 87.45% |
| CF Industries Holdings Inc. | CF, +2.85% | 33.16% | 23.85% |
| Alexandria Real Estate Equities Inc. | ARE, +1.43% | 38.34% | 36.98% |
| Celgene Corp. | CELG, +1.12% | 94.06% | 93.39% |
| Paccar Inc. | PCAR, +1.59% | 15.90% | 14.45% |
| Alexion Pharmaceuticals Inc. | ALXN, +2.47% | 84.99% | 83.29% |
| Chipotle Mexican Grill Inc. | CMG, +2.15% | 17.29% | 15.83% |
| ResMed Inc. | RMD, +1.69% | 59.27% | 56.26% |
| Merck & Co. Inc. | MRK, +0.47% | 71.44% | 66.99% |
| Duke Realty Corp. | DRE, +1.65% | 34.11% | 33.96% |
| Source: FactSet | |||
Here’s a summary of analysts’ opinions about this group.
| Company | Ticker | Share 'buy' ratings | Share neutral ratings | Share 'sell' ratings | Closing price - Aug. 7 | Consensus price target | Implied 12-month upside potential |
| Vornado Realty Trust | VNO, +1.63% | 61% | 31% | 8% | $60.89 | $72.55 | 19% |
| Qualcomm Inc. | QCOM, +2.16% | 48% | 52% | 0% | $69.40 | $82.65 | 19% |
| CVS Health Corp. | CVS, +1.58% | 65% | 35% | 0% | $58.12 | $68.52 | 18% |
| SL Green Realty Corp. | SLG, +1.82% | 52% | 37% | 11% | $76.79 | $96.34 | 25% |
| Jefferies Financial Group Inc. | JEF, +1.48% | 50% | 50% | 0% | $19.64 | $28.50 | 45% |
| Ansys Inc. | ANSS, +4.31% | 41% | 41% | 18% | $201.89 | $212.92 | 5% |
| Royal Caribbean Cruises Ltd. | RCL, +2.42% | 80% | 20% | 0% | $107.37 | $141.18 | 31% |
| Amazon.com Inc. | AMZN, +1.93% | 100% | 0% | 0% | $1,793.40 | $2,275.98 | 27% |
| Fortinet Inc. | FTNT, +3.56% | 36% | 57% | 7% | $81.46 | $94.96 | 17% |
| United Technologies Corp. | UTX, +1.75% | 74% | 26% | 0% | $129.01 | $154.63 | 20% |
| MarketAxess Holdings Inc. | MKTX, +0.88% | 0% | 82% | 18% | $348.92 | $306.56 | -12% |
| CF Industries Holdings Inc. | CF, +2.85% | 47% | 53% | 0% | $50.45 | $53.00 | 5% |
| Alexandria Real Estate Equities Inc. | ARE, +1.43% | 64% | 36% | 0% | $144.36 | $152.10 | 5% |
| Celgene Corp. | CELG, +1.12% | 17% | 83% | 0% | $93.97 | $98.83 | 5% |
| Paccar Inc. | PCAR, +1.59% | 17% | 66% | 17% | $65.26 | $71.25 | 9% |
| Alexion Pharmaceuticals Inc. | ALXN, +2.47% | 84% | 16% | 0% | $108.91 | $158.94 | 46% |
| Chipotle Mexican Grill Inc. | CMG, +2.15% | 34% | 46% | 20% | $795.05 | $756.55 | -5% |
| ResMed Inc. | RMD, +1.69% | 59% | 18% | 23% | $129.00 | $127.68 | -1% |
| Merck & Co. Inc. | MRK, +0.47% | 87% | 13% | 0% | $84.25 | $94.67 | 12% |
| Duke Realty Corp. | DRE, +1.65% | 76% | 24% | 0% | $32.67 | $34.59 | 6% |
| Source: FactSet | |||||||
Don’t miss: Here’s a real contrarian play to take advantage of other investors’ fear
Create an email alert for Philip van Doorn’s Deep Dive columns here.