Tariffs, Margins and the Q4 Earnings Season

The mixed guidance from bellwether retailers like Walmart WMT notwithstanding, the overall picture emerging from the Q4 earnings season has been of resilient growth and improving outlook. Tariffs remain a headwind and have been a recurring theme on the Q4 earnings calls, with companies from variety of sectors like Proctor & Gamble PG and 3M MMM citing it as a negative factor.

Tariffs are weighing on margins, with Q4 net margins for the 96% of S&P 500 index members that have reported already modestly below the preceding quarter’s level. At the sector level, Q4 net margins are below the preceding quarter’s level for 9 of the 16 Zacks sectors, with the Construction, Industrial Products, Autos, Medical and Transportation sectors experiencing the biggest margin squeeze. On the positive side, net margins expanded sequentially the most for the Tech, Finance and Aerospace sectors.

The chart below compares the reported Q4 net margins relative to other recent periods and historical ranges.

With respect to the Q4 earnings season scorecard, we now have results from 481 S&P 500 index members or 96.2% of the index’s total membership. Total earnings for these companies are up +15.1% from the same period last year on +9.4% higher revenues, with 74.8% beating EPS estimates and 73.4% beating revenue estimates.

For more details about the Q4 earnings season and evolving expectations for the current and coming periods, please check out our weekly Earnings Trends report here >>>Retail Sector Earnings in Focus

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This article originally published on Zacks Investment Research (zacks.com).

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