Q1 GDP 3.2% -- Big Upside Surprise!

Mark Vickery

Friday, April 26, 2019

Gross Domestic Product in the first quarter of 2019 (Q1 GDP) blew the doors off expectations ahead of the opening bell today: 3.2% was well ahead of the consensus 2.3% estimated, which itself had been cranked up from the sub-1% expectations many analysts had been expecting prior to Q1 earnings season. This is the strongest Q1 read since the 3.3% we saw in 2015.

Personal Consumption rose 1.2% in the quarter, down from Q4 2018. So business investment and growth appears to be at the heart of the positive surprise, following last year’s corporate tax cut benefits. The Price Index came in at 0.9%, so we don’t see a swell of inflation invading the economy at this stage, either.

Clearly, the Fed pausing on raising interest rates at its March meeting has been helpful to attitudes among business leaders in the U.S. economy. However, with a 3.2% read on Q1 GDP, perhaps we might start hearing about another quarter-point rate hike this June or thereabouts. And this would create headwinds for stock market investing; in other words: Good News = Bad News.

But that’s getting ahead of ourselves. Certainly a 3-handle on Q1 domestic growth is a big positive for investors in the U.S. One might even look toward the ongoing trade war with China forcing domestic businesses to pick up the slack in goods producing having something to do with this quarterly success. But this morning’s data does not directly address such things.

Basically, Q1 GDP thrived despite a 5-week government shutdown, two bomb cyclones in the Midwest and other weather-related issues in the winter months hindering productivity, trade tensions between China and the U.S., weakness in the European economy and the traditional weakness in Q1 relative to the rest of the year. Hard to find fault with any of that.

ExxonMobil’s XOM Q1 earnings report came up notably short of expectations this morning, declaring 55 cents per share earnings that missed the Zacks consensus by 20 cents. This figure is down nearly 50% year over year. Revenues of $63.63 billion also missed estimates of nearly $68 billion for the quarter. It also marks the third miss for the world’s largest integrated oil company in the past five quarters.

Refinery maintenance costs hit the bottom line in Exxon’s Q1, and the company addressed the revenues miss by stating it expects to ramp up its Permian Basin output this year. In other words, Exxon is treating its Q1 like an aberration.

Chevron CVX, by contrast, topped estimates on its bottom line by 13 cents to $1.39 per share on revenues that came up short of the $37.89 billion expected. The second-largest U.S.-based oil firm saw volumes rise 7% year over year, but the crucial narrative for the company will be what happens in its bidding war for Anadarko APC.

French multinational oil company TOTAL TOT missed earnings estimates ahead of today’s open, as well: $1.02 per share versus the $1.09 in the Zacks consensus. Revenues rose 4.2% year over year to $45.11 billion. For more on TOT’s earnings, click here.

All three integrated oil companies held Zacks Rank #3 (Hold) ratings with Zacks Style Scores of A ahead of their earnings releases.

Mark Vickery
Senior Editor

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