Tax cuts were just ‘the cherry on top’ for earnings growth in the second quarter

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Tax cuts helped, but it was strong sales growth that drove second-quarter earnings growth.

Corporate earnings were strong in the second quarter. Had to be the tax cuts, right?

They helped, but actually, the tax cuts from the Tax Cuts and Jobs Act were just the “cherry on top,” according to an analysis done by the Leuthold Group, a Minneapolis research and investment management firm. That law cut the headline corporate tax rate from 35% to 21%, though the actual rate paid differs by company and sector.

Leuthold broke down growth in S&P 500

SPX, +0.08%[1]  earnings per share outside of financials and real estate.

What it found was faster sales was the biggest driver, accounting for 11.1% of the 22.2% year-over-year gain. Across all market cap cuts, sales growth rose by double-digits, and also in six out of 11 sectors.

The tax cuts accounted for about a third of the growth, or 7.7%. Expanding operating margins contributed another 4.7%, while pretax margins — restructuring charges, write-offs and the like — subtracted 2.4%.

The analysis found interest rate expenses only made up 1.7% of sales, showing they have not bitten into growth.

Leuthold says Wall Street analysts are expecting 21% earnings growth in the third quarter and 17.7% in the fourth quarter, which would produce 21% earnings growth for the full year....


  1. ^ SPX, +0.08% (

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