Looking Ahead to the Q2 Earnings Season

Globe and Mail

7 hours ago

The expectation is for Q2 earnings to increase by +5% from the same period last year on +4% higher revenues. This will be a material deceleration from the growth trend of recent quarters and will be the lowest earnings growth pace since the +4.3% growth rate in 2023 Q3.
We have been regularly flagging in recent weeks that 2025 Q2 earnings estimates have been steadily decreasing, as shown in the chart below.
As we have been consistently flagging, earnings estimates took a renewed hit at the start of Q2, following the early April tariff announcement. This was particularly notable for Q2, but estimates for the subsequent periods were also trimmed.
While the revisions trend has notably stabilized in recent weeks, the magnitude of cuts to 2025 Q2 estimates since the start of the period is larger and more widespread compared to what we have become accustomed to seeing in the post-COVID period.
Since the start of April, Q2 earnings estimates have declined for 13 of the 16 Zacks sectors (Aerospace and Utilities are the only sectors whose estimates have increased), with the biggest cuts to Conglomerates, Autos, Transportation, Energy, Basic Materials, and Construction sectors.
Estimates for the Tech and Finance sectors, the largest earnings contributors to the S&P 500 index, accounting for more than 50% of all index earnings, have also been cut since the quarter got underway. But as we have been pointing out in recent weeks, the revisions trend for the Tech sector has notably stabilized in recent weeks, which you can see in the chart below.
We see this same trend at play in annual estimates as well. The chart below shows the Tech sector's evolving earnings expectations for full-year 2025
A likely explanation for this stabilization in the revisions trend is the easing in the tariff uncertainty after the more punitive version of the tariff regime was delayed. Analysts began revising their estimates downward in the immediate aftermath of the early April tariff announcements but appear to have since concluded that those punitive tariff levels are unlikely to be levied, helping to stabilize the revisions trend.
The chart below shows current Q2 earnings and revenue growth expectations in the context of the preceding four quarters and the coming three quarters.
The chart below shows the overall earnings picture on a calendar-year basis.
In terms of S&P 500 index 'EPS', these growth rates approximate to $254.14 for 2025 and $287.31 for 2026.
The chart below shows how these calendar year 2025 earnings growth expectations have evolved since the start of Q2. As you can see below, estimates fell sharply at the beginning of the quarter, which coincided with the tariff announcements, but have notably stabilized over the last four to six weeks.
Q2 Earnings Season Scorecard
As noted earlier, we have already seen fiscal May-quarter results from 18 S&P 500 members, which we count as part of our Q2 tally. Total earnings for these 18 index members that have reported results are up +3.1% from the same period last year on +6.5% revenue gains, with 83.3% of the companies beating EPS estimates and 88.9% of them beating revenue estimates.
The comparison charts below put the Q2 earnings and revenue growth rates for these index members in a historical context.
The comparison charts below put the Q2 EPS and revenue beats percentages in a historical context.
We are not drawing any conclusions from these results, given the small sample size at this stage. But we nevertheless wanted to put these early results in a historical context.
We have less than a dozen companies on deck to report results this holiday-shortened week, including Constellation Brands STZ from the S&P 500 index.
Constellation produces alcoholic beverages, with a portfolio of beer-heavy products, including Modelo, Corona, and others. Constellation shares have been under pressure this year, with the stock down -27% in the year-to-date period and lagging the broader market's +3.8% gain.
Constellation's core product, Modelo, is heavily indexed to Hispanic consumers, with over 50% of the brand's sales coming from this demographic group. While the labor market remains strong, consumption trends of this demographic group have been weighed down by affordability issues. Aluminum tariffs are another headwind for Constellation Brands, given the company's exposure to the industrial metal for beer cans.
Among the notable recent earnings releases, market participants were pleased with the Nike NKE announcement but were less enthusiastic about the FedEx FDX report. Both companies have been big-time laggards lately, with Nike shares down -4.8% this year, even after the big post-release jump, and FedEx shares are down -18.5%.
While there were undoubtedly a few 'green shoots' in the Nike release, the stock's strong positive reaction is more a function of how low expectations had been coming into the release rather than truly impressive numbers. Nike still faces multiple challenges, including margin pressure, a stagnant product portfolio, operational challenges in China (accounting for approximately 15% of total sales), and significant tariff exposure.
We should note, however, that both Nike and FedEx beat top- and bottom-line consensus estimates.
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