Q2 2024 Analysis: Key Drivers of Corporate Profit Growth
With nearly 90% of the Q2 reports already submitted, we share the key takeaways of the season:
EPS Growth:
- Earnings Per Share (EPS) exceeded initial expectations with a year-over-year increase of +8.3%.
- 79% of companies reported EPS above expectations, surpassing the long-term average of 75%.
- The EPS growth for the S&P 500 was positive, even excluding the Mag-7, for the first time in five quarters, with a +4.6% year-over-year growth.
Uneven Performance:
Despite an overall solid season, some indicators fell short of expectations.
- The proportion of companies that beat sales estimates in the U.S. dropped to 48%, well below the long-term average of over 60%. In its year-over-year variation, sales grew +5%.
- This could put pressure on profit margins in the second half of the year.
Regional Performance:
- U.S. companies showed better performance in terms of EPS, with an 8% year-over-year growth, compared to +1% in Europe.
- However, the proportion of companies exceeding sales estimates in Europe (51%) was higher than in the U.S. (48%).
- This performance aligns with fluctuations in exchange rates.
Sector Results:
- The Materials and Consumer Staples sectors showed weaker results.
- In contrast, Consumer Discretionary, Healthcare, Financials, and Utilities experienced double-digit EPS growth.
- Amazon was the biggest driver of growth in the Consumer Discretionary sector; without Amazon, growth in this sector would have dropped by 6% year-over-year.
Future Perspectives:
- Despite challenges such as high interest rates and slowing employment, the overall resilience of the economy may continue to drive corporate earnings.
- An annual growth of 10.3% is expected for this year, slightly below the initially estimated 10.8%.
- For the next year, earnings growth is projected to be close to 15%, which seems somewhat optimistic for a scenario of economic slowdown.
S&P 500 Earnings Growth and S&P 500 Excluding the Magnificent 7
Source: JP Morgan