Making Sense of the Evolving Earnings Picture
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:
Total Q1 earnings for the 456 S&P 500 members that have reported results are up +12.1% from the same period last year on +4.5% higher revenues, with 73.9% beating EPS estimates and 62.1% beating revenue estimates.
We continue to believe that this earnings season was less about what companies earned in the first quarter of 2025 and more about sizing up the earnings impact of the evolving macroeconomic and public policy backdrop. To that end, management commentary has largely been reassuring despite the uncertainty.
Estimates for the current period (2025 Q2) have been under pressure, with bigger declines in estimates compared to other recent post-COVID periods. That said, estimates for the Tech sector have notably stabilized lately.
For 2025 Q2, total S&P 500 earnings are expected to be up +5.9% from the same period last year on +3.8% higher revenues. Q2 estimates have been steadily coming down, with the magnitude and breadth of negative estimate revisions greater than had been the case in the comparable periods of other recent quarters.
What's Happening to 2025 Q2 Earnings Estimates?
The start of Q2 coincided with heightened tariff uncertainty following the punitive April 2 nd tariff announcements. While the onset of the announced levies was eventually delayed for three months, the issue has understandably weighed heavily on estimates for the current and coming quarters.
The expectation at present is for Q2 earnings for the S&P 500 index to increase by +5.9% from the same period last year on +3.8% higher revenues. The chart below shows how Q2 earnings growth expectations have evolved since the start of the year.
While it is not unusual for estimates to be adjusted lower, the magnitude and breadth of the Q2 estimate cuts are greater than we have seen in the comparable periods of other recent quarters.
Since the start of the quarter, estimates have come down for 13 of the 16 Zacks sectors, with the biggest declines for the Transportation, Autos, Energy, Construction, and Basic Materials sectors.
Estimates for the two largest earnings contributors to the index – Tech & Finance – have declined since the quarter began.
Tech sector earnings are expected to be up +12.4% in Q2 on +9.8% higher revenues. While these earnings growth expectations are materially below where they stood at the start of April, the revisions trend appears to have notably reversed course in recent weeks, as we have been flagging lately. You can see this reversal in the sector's revisions trend in the chart below.
This favorable turn in the Tech sector's revisions trend can be seen in expectations for full-year 2025 as well, as the chart below shows.
Hard to tell at this stage how durable this reversal in the Tech sector's estimates will prove to be, but the favorable turn in the sector's Q2 estimates at least proves that the shift to the annual growth pace isn't solely a function of strong positive Q1 earnings releases, particularly from the Mag 7 players. We can see this trend reversal in the estimates for Microsoft MSFT, Alphabet GOOGL, and Meta META.
The current Q2 Zacks Consensus EPS estimate for Alphabet of $2.12 is down from $2.15 on April 4 th, but is up from $2.08 on April 25 th and $2.07 a week prior to that. Similarly, for Meta, the current Q2 EPS estimate of $5.84 is down from $5.94 on April 4 th, but up from $5.70 on May 2 nd and $5.51 on April 25 th. The revisions trend for Microsoft is similar, though the company's current Q2 estimate is modestly higher relative to where it stood at the start of April.
You can rest assured that we will be closely monitoring the Tech sector's revisions trend in the days ahead.
The Earnings Big Picture
The chart below shows expectations for 2025 Q1 in terms of what was achieved in the preceding four periods and what is currently expected for the next three quarters.
The chart below shows the overall earnings picture for the S&P 500 index on an annual basis.
While estimates for this year have started coming down lately, there haven't been a lot of changes to estimates for the next two years at this stage.
Given all-around worries about the economy's growth momentum, it is reasonable to expect these estimates to be lowered further in the days ahead as the tariffs impact starts showing up in data.
The modestly negative GDP read for the first quarter of the year primarily reflected the anticipatory effects of the trade regime, with importers stocking up on supplies ahead of the new levies taking effect.
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