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It’s A Wrap: Second Quarter Earnings Season Comes To A Close With Record Numbers

With second quarter earnings season for the S&P 500 wrapping up, we at Global Markets Intelligence think there is a no denying that this has been a hallmark quarter. Currently, year-over-year profit growth for the index stands at 10.3%, the highest growth rate since third-quarter 2011 reported 17.7%. Although our expectations for the second quarter were always more bullish than consensus estimates, this 10.3% rate is even higher than the 9.0%-10.0% we predicted at the beginning of the season. Analysts expect earnings per share (EPS) to come in at $29.69, another quarterly record for the index.

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The focus these past couple of weeks has been on the retailers, which have posted impressive results. Three of the four retail industries (internet and catalog, multiline, and specialty) have come in with double digit growth figures for the quarter, and only the textiles, apparel, and luxury goods industry declined, by 8.2%. Of the 18 retailers that have reported in the past two weeks, 11 have exceeded analysts' earnings estimates, five have met those estimates, and only two have reported below. As far as year-over-year growth is concerned, the home improvement retailers were the biggest winners last week, with Home Depot Inc. increasing profits by 23% over second-quarter 2013 and Lowe's Cos. improving 18%. The internet retailers also closed out the season on a high note, with the final reporting company in that industry, The Priceline Group, beating estimates by 4% and growing an impressive 29% from second-quarter 2013. Despite disappointing retail sales, which worsened during each month of the second quarter, retailers' profits have remained strong. Analysts anticipate the overall consumer discretionary sector to continue to do well for the balance of the year.

While the strong 5.0% revenue growth estimate for the second quarter is still slightly below the 15-year average of 6%, this would be the highest top-line growth rate since second-quarter 2012. Sales growth cannot be manipulated in the same manner that earnings data can, so it is often used as a barometer of corporate health. This quarter's revenue figure is pointing toward a corporate environment that is steadily improving. This puts to rest the worry that companies weren't actually growing. Analysts expect the health care (12.4%) and consumer discretionary (6.5%) sectors to lead top-line growth, while the telecommunication services sector (-11.8%) is the biggest laggard.

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