Q2 Corporate Earnings: Is 'Good' Good Enough?

Summary

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WSJ Your Money Briefing – Episode Summary

Episode: Q2 Corporate Earnings: Is 'Good' Good Enough?
Date: July 10, 2018
Host: JR Whalen
Guest: Justin Lahart, Heard on the Street columnist, The Wall Street Journal

Brief Overview

This episode dives into Wall Street’s expectations for Q2 2018 corporate earnings, exploring whether “good” results are “good enough” amid a climate of high first quarter growth, wage increases, and ongoing trade tensions. Host JR Whalen and columnist Justin Lahart discuss why the upcoming earnings season may still surprise investors, despite widespread concerns about decelerating growth.

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Key Discussion Points & Insights

U.S. Corporate Earnings Outlook

• Strong, But Slower Growth Expected

  • While Q2 numbers may not match the impressive 26.6% average growth of Q1, companies are still expected to post robust results.

    "Second quarter earnings won't be as strong as the first quarter, but corporate America will be just fine." – JR Whalen [01:11]

  • There is widespread discussion of possible "earnings deceleration," but Lahart argues the season still looks stronger than both investors’ and analysts’ forecasts suggest.

    "If you worry too much about it decelerating, you might miss how good this earnings season is likely to be and probably much better than what analysts are... expecting right now." – Justin Lahart [03:51]

• Earnings Warnings Are Scarce

  • Typically, companies issue many warnings ahead of earnings, but this quarter, pre-announcements have been rare.

    "One big one is if you just take a look at how many companies have been warning on earnings... They've been really quiet. And usually what that means... the quarter went really well for a lot of people." – Justin Lahart [04:18]

Why the Market’s Bar is (Still) Low

• Analysts’ Modest Projections
  • Analysts tend to set conservative expectations, helping companies clear performance hurdles.

    "They always set the bar low. So you always expect that, you always expect that earnings are going to be better than what analysts think." – Justin Lahart [04:12]

  • This quarter, “they’ll be more better,” as Lahart puts it, with companies likely to outperform even the modest outlooks.

Economic Winds and Future Uncertainty

• Effect of Trade and Tariffs

  • While economic headlines revolve around tariffs and trade tensions, the panel agrees these factors are unlikely to significantly impact Q2 numbers.

    "I know we're talking a lot about tariffs and all the trade stuff, but that isn't going to impact things in the second quarter." – Justin Lahart [04:55]

• The Real Focus: Forward Guidance

  • Investors should pay closer attention to companies’ commentary about Q3 and Q4, particularly regarding how trade disputes and cost pressures may start to bite.

    "You're definitely going to have to think about what's going to be happening in the third quarter and the fourth quarter. So there's probably going to be a lot of concentration spent on what companies are saying on their earnings calls... Companies are going to be talking about how they might be affected by trade, what they might be doing to deal with... tariffs." – Justin Lahart [05:33]

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Notable Quotes & Memorable Moments

• “If you worry too much about it [earnings] decelerating, you might miss how good this earnings season is likely to be.” – Justin Lahart [03:51]

• “They always set the bar low.” – Justin Lahart on analyst forecasts [04:12]

• On Q2 warnings:

  "They've been really quiet. And usually what that means... the quarter went really well for a lot of people." – Justin Lahart [04:18]

• “There always are [earnings warnings]. Someone was going to come out and really kind of mess things up, but we haven't seen a lot of them.” – Justin Lahart [05:07]

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Timestamps for Key Segments

• [01:11] – Host introduces Q2 earnings theme: Will “good” be “good enough”?
• [03:10–04:03] – Lahart discusses worries of “earnings deceleration” vs. reality
• [04:11–04:55] – Analyst expectations, rarity of warnings, and implications for investor sentiment
• [05:24–06:13] – Importance of listening to future guidance, not just Q2 results

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Episode Tone & Closing Thoughts

The tone is practical and lightly optimistic, encouraging listeners to consider not just headline numbers, but also the broader economic landscape and forward-looking company statements.

“But a good reason to stay with WSJ.com and follow the numbers…” – JR Whalen [06:13]

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Summary prepared for listeners seeking strategic perspectives on the Q2 2018 earnings season, analyst expectations, and the significance of company guidance about future quarters.

Transcript

[A]

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[B]

money briefing Money in Market stories from the Wall Street Journal. I'm JR Whalen in New York. Second quarter earnings won't be as strong as the first quarter, but corporate America will be just fine. We'll hear from the Hurt on the street team in a moment. First, these money headlines Rising wages are beginning to eat into the profits of some U.S. companies. Average hourly earnings increased 2.7% in June from a year earlier, and they've risen at least 2.5% over 16 of the past 17. That's good news for US workers who've seen anemic wage increases over the past few years and may benefit some businesses as consumers become more willing to open their wallets. But the higher costs pose a threat to some US Companies that are already facing trade related tensions and a limited ability to raise prices to keep up with inflation. Speaking of wages, a survey by the mobile app and web platform Busy Kids says that many parents are inadvertently perpetuating the wage gap for children when they set rates for their seemingly trivial household jobs. But boys aged five to seven years make 50% more in weekly allowance than girls in the same age group. The average boy makes $13.80 per week, while the average girl makes $6.71. The survey of 10,000 users indicates that boys are also more likely to be paid for chores that have to do with basic hygiene, like showering or brushing teeth, while girls will do such tasks with less incentive. Although girls make less money than boys, they end up saving nearly the same amounts. Boys save an average of doll per month, while girls save $23.49. And while the average worker between 25 and 34 stays in a job for 2.8 years, Pew researchers discovered as many as 22% of millennials in 2016 had been with their employer at least five years. That's longer than is expected for an age group that has a reputation for job hopping. And a Qualtrics Excel Partners survey found that nearly 90% of millennials would agree to stay in a job for at least 10 years if they knew it offered annual raises in upward mobility. This is your money briefing from the Wall Street Journal. Welcome back, everybody. The calendar reads the second week of July, and that means we are into earnings season. But while second quarter numbers are unlikely to match the strong 26.6% average growth we saw in the first quarter heard on the street, columnist Justin lehart is here to say they'll still beat expectations. Justin, it sounds like when it comes to second quarter earnings, we can apply the adage good is good enough or is that too optimistic?

[C]

I mean, it's really good. I think what's been happening, there's been a lot of talk on Wall street lately about an earnings deceleration. So that the peak of growth was probably in the first quarter. And that's probably true. And it'll probably earnings growth will continue to deteriorate, you know, definitely next year once the, the tax cut effects that really boosted earnings lately kind of calendar out. And that's a concern for people on Wall street because when earnings growth accelerates, it's, it makes for a challenging environment for the market. But the thing is, is if you worry too much about it decelerating, you might miss how good this earnings season is, is likely to be and probably much better than what analysts are significantly better than what analysts are expecting right now.

[B]

Yeah. I was going to ask you how much of the expected rosy second quarter earnings is the result of analysts who you point out in your story, they typically set the bar kind of low.

[C]

Yeah, they always set the bar low. So you always expect that, you always expect that earnings are going to be better than what analysts think. In this case, it looks like they'll be more better. They'll be more better. And there's a couple of reasons for that. One big one is if you just take a look at how many companies have been warning on earnings. So this is sort of the warnings period right before the earnings start to come out. They've been really quiet. And usually what that means when you don't see a lot of warning activity, that, hey, the quarter went really well for a lot of people and it makes sense. Right. The economy is doing really well right now. I know we're talking a lot about tariffs and all the trade stuff, but that isn't going to impact things in the second quarter.

[B]

We usually see like a stream of warnings, don't we?

[C]

Yeah. And I'm sure that, I mean, you know, here we are talking right now I'm sure that there will be some earnings warnings. There always are. Someone was going to come out and really kind of mess things up, but we haven't seen a lot of them. It just hasn't been on the radar.

[B]

You also make a good point that the second quarter earnings shouldn't be judged in and of themselves, but stacked up against what is expected in future quarters.

[C]

Right. And that's going to be the other thing to really watch here. I do think that there are going to be better, more better. Again, that should be supportive of stock prices. Right. You know, on the other hand, you're definitely going to have to think about what's going to be happening in the third quarter and the fourth quarter. So there's probably going to be a lot of concentration spent on what companies are saying on their earnings calls. And people are going to be really interested in this trade stuff. Companies are going to be talking about how they might be affected by trade, what they might be doing to deal with, you know, tariffs that have already been announced or tariffs that have been.

[B]

All right, we will see a lot of headwinds out there. Winds of change can affect the earnings numbers as they come out. But a good reason to stay with WSJ.com and follow the numbers that is Wall Street Journal hurt on the street columnist Justin LeHart joining us here in our studio. Justin, thanks for being with us.

[C]

Thanks for having me.

[B]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[A]

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