Corporate profit and revenue gains are indeed getting smaller, thanks mainly to the tariff war with China, but the Barron’s 400 Index is keeping the growth story alive.
Results are mostly in for the second fiscal quarter of 2019, and once again the financially strong, growth-oriented companies in the Barron’s 400 outgrew those in the S&P 500. However, the S&P 500 did a better job than the Barron’s 400 in converting a year-over-year revenue increase (of less than 3%) into bigger per-share profit growth (of nearly 6%). By contrast, the Barron’s 400’s 7% revenue advance produced just a 6.6% rise in profit.
| Median Reported 2Q 2019 EPS Vs. | Median Reported 2Q 2019 Revenue Vs. | |||
| Estimate | 2Q 2018 | Estimate | 2Q 2018 | |
| Barron’s 400 | 5.70% | 6.64% | 1.15% | 7.07% |
| S&P 500 | 3.52% | 5.98% | 0.17% | 2.67% |
Securities analysts, whose estimates are used in this second-quarter recap, over-slashed their profit projections in their rush to account for tariff-war ramifications. As usual they did a better forecasting job with revenue. Here are how recent median estimates behaved during the past six months:
| Median Estimates Over Previous Six Months | ||
| EPS | Revenue | |
| Barron’s 400 | -4.44% | -2.77% |
| S&P 500 | -6.30% | -3.14% |
At the sector level, on a year-over-year basis, the S&P 500’s per-share profits outgrew the Barron’s 400 in only three of ten, consumer staples, health care and industrials.
| Barron’s 400 2Q 2019 | S&P 500 2Q 2019 | |||
| Median Reported EPS Vs. | Median Reported EPS Vs. | |||
| Med. Estimate | Med. 2Q 2018 | Med. Estimate | Med. 2Q 2018 | |
| Consumer Discretionary | 7.15% | 4.61% | 5.11% | 3.93% |
| Consumer Staples | 4.49% | 0.03% | 2.69% | 3.59% |
| Energy | 6.72% | 13.99% | 10.86% | 0.19% |
| Financials | 4.27% | 8.05% | 3.40% | 7.98% |
| Health Care | 5.88% | 7.73% | 5.48% | 10.54% |
| Industrials | 5.80% | 5.91% | 2.07% | 6.90% |
| Materials | 1.59% | 9.76% | 1.66% | 2.72% |
| Technology | 7.63% | 7.34% | 3.39% | 3.28% |
| Telecommunications | 7.14% | 3.00% | 2.44% | 2.50% |
| Utilities | 3.51% | -4.23% | 0.59% | -5.05% |
As for revenue, the Barron’s 400 grew more than the S&P 500 in all sectors except utilities. The Barron’s 400 currently has only three utilities companies, compared to 28 for the S&P 500.
| Barron’s 400 2Q 2019 | S&P 500 2Q 2019 | |||
| Median Reported Revenue Vs. | Median Reported Revenue Vs. | |||
| Med. Estimate | Med. 2Q 2018 | Med. Estimate | Med. 2Q 2018 | |
| Consumer Discretionary | 1.31% | 6.15% | 0.21% | 2.65% |
| Consumer Staples | 0.32% | 6.71% | -0.14% | 0.98% |
| Energy | 2.55% | 7.95% | 2.00% | -1.09% |
| Financials | 1.29% | 7.66% | 0.56% | 4.13% |
| Health Care | 1.75% | 7.19% | 1.32% | 4.86% |
| Industrials | 0.53% | 6.47% | -0.12% | 2.78% |
| Materials | -0.73% | 0.54% | -0.93% | -0.85% |
| Technology | 1.16% | 10.60% | 0.29% | 3.37% |
| Telecommunications | -1.19% | 1.77% | -0.25% | -0.32% |
| Utilities | -3.44% | -7.41% | -2.70% | -3.10% |
Performance varied more widely when viewed by company size, as measured by market capitalization. The S&P 500’s dominant segment, mega caps, outgrew per-share earnings by 80 basis points—and also converted more of the increased revenue into profits. The opposite occurred in large caps, where the Barron’s 400 grew per-share profit respectably (7.5% on a year-over-year basis), while the S&P 500 segment didn’t grow at all. The Barron’s 400 also scored gains in mid-caps and small caps, which don’t exist in the S&P 500. However, micro-cap companies once again were hammered on profits as they incurred higher costs to handle a sizable upswing in revenue.
| Median Reported 2Q 2019 EPS Vs. | Median Reported 2Q 2019 Revenue Vs. | ||||
| Mega Cap (>$10 billion) | Estimate | 2Q 2018 | Estimate | 2Q 2018 | |
| Barron’s 400 | 4.49% | 6.50% | 0.59% | 5.90% | |
| S&P 500 | 3.46% | 7.29% | 0.29% | 3.30% | |
| Large Cap ($3 bln-$10 bln) | |||||
| Barron’s 400 | 7.06% | 7.54% | 1.46% | 9.86% | |
| S&P 500 | 4.49% | 0.00% | -0.19% | 0.29% | |
| Mid Cap ($1 bln-$3 bln) | |||||
| Barron’s 400 | 6.75% | 6.75% | 1.73% | 7.73% | |
| S&P 500 | N.A. | N.A. | N.A. | N.A. | |
| Small Cap ($500m-$1 bln) | |||||
| Barron’s 400 | 8.07% | 9.91% | 1.52% | 10.27% | |
| S&P 500 | N.A. | N.A. | N.A. | N.A. | |
| Micro Cap (< $500 mln) | |||||
| Barron’s 400 | 65.91% | -26.75% | 3.95% | 32.32% | |
| S&P 500 | N.A. | N.A. | N.A. | N.A. | |
The second quarter results confirmed the unsettled nature of the period, and the past summer showed there is no letup in the uncomfortable, unpredictable event affecting businesses. But the second quarter also showed that not only is growth possible but also that the Barron’s 400 can achieve it even with strong headwinds.
