S&P500 earnings growth in the 1st quarter looks like it will be about 18% with revenue growth coming in around 7.5%. A higher net (i.e. after tax) profit margin is a significant contributor to the higher earnings. A higher net profit margin shouldn’t be a surprise as this margin has been gradually improving since the 3rd quarter of 2015. Since that time it has increased 0.5%, from 10.0% to 10.5%. What is surprising is the 1st quarter of this year looks like the margin will move up to 11%. Another 0.5% increase but in one quarter as opposed to eight quarters. This would be a record high for corporate net profit margins.
On their 1st quarter conference calls companies have been talking about costs, including wages, increasing, so it’s apparent the new tax policy is helping earnings. This means that year over year comparisons will be positively impacted for the next three quarters.
Only about 17% of the S&P 500 companies have actually reported earnings but 80% of those companies reported earnings above expectations. Normally most companies exceed their “managed” earnings guidance but the 80% number is still above what might be expected.
