It has been a busy month and half with companies from around the world (with a particular focus on the U.S.) and Australia providing an earnings update. Perhaps more importantly investors were interested in hearing managements’ commentary on the current trading environment and their twelve-month outlook statements. While share prices may bounce around over the short term due to investor sentiment oscillating between euphoric and bearish, over the long-term share prices will follow earnings growth. Below we provide a quick recap from recent earnings updates.
U.S. earnings well ahead of estimates
For global equities, we will focus on U.S. S&P 500 index earnings. The index has some of the largest companies in the world and it also represents companies with significant global exposure across many regions, hence we get a relatively decent view on what supply and demand is doing globally across a range of industries. The table in Figure 1 provides the EPS growth analysis from 2Q25 earnings for 473 companies.
We want to highlight just a few key points from the table:
- 77.4% of the companies beat consensus EPS expectations, which is slightly higher than the long-term average we are used to seeing in the U.S.
- Earnings growth of +10.5% year-on-year for the 2Q25 were materially ahead of market expectations of +2.8% heading into the reporting period. However, we think it is also fair to suggest that due to the uncertainty created by Liberation Day tariffs in April, investor expectations heading into this quarter had probably been lowered and were too conservative. Putting everything aside, +10.5% EPS growth in absolute terms is a very solid result.
- A lot is speculated about the health of companies outside of the technology sector or the Magnificent 7. That is, index earnings are being supported by a few tech companies. Heading into this reporting period, market EPS growth expectations for companies outside the technology and Magnificent 7 were essentially flat. However, EPS growth ex-technology and ex-Magnificent 7 came in at a solid +7.7% and +6.6% YoY, respectively.
Margin did not fall off a cliff
Another pleasing part of the recent earnings updates was that company operating margins held up. While we are cognisant that tariff impacts may still take time to show up in operating margins, so far operating margin of 15.7% was largely in line with market expectations at 15.8%. As we have previously noted, management comments from numerous companies suggest to us that pressure from tariffs is by and large being equally shared among companies (margin pressure), consumers (some price increases) and suppliers.
Australian reporting season disappoints
The August reporting season has been a lacklustre one in our view. For the S&P/ASX 300 Index, those companies that have reported their annual results only 33% of the companies have beat market expectations. Which is well below historical averages. The table in Figure 3 shows, in aggregate, earnings are down -11.4% YoY, which is a soft result. However, we would point out that some of the earning numbers in this data could be distorted due to the lack of adjustments for one-off significant items. Nonetheless, in our view, earnings have been below expectation. There are few notable trends we have seen from the Australian reporting season – global cyclical companies listed on the ASX have generally reported weaker than expected results and large capitalisation stocks have disappointed more versus their smaller capitalisation peers.
