EARNINGS WATCH: Solid Results, Poor Guidance

First reading after a good chunk of companies have reported. From Bespoke Investment:

Since last Monday when earnings season began, 345 US stocks have reported their quarterly numbers.  As shown below, 70% of these companies have beaten earnings per share estimates, while 71% have beaten revenue estimates.  Both of these numbers are high relative to prior quarters during the current bull market, but they also both typically pull back as earnings season progresses.

Last season, the earnings beat rate came in at its lowest level of the bull market.  As of now, it appears as if the beat rate will be stronger this quarter, which is a good sign.  The revenue beat rate wasn’t all that bad last quarter, and it will be pretty impressive if we can see a quarter-over-quarter increase when all is said and done this season.

Guidance, on the other hand, has been awful.  Of the 345 companies that have reported, 5.8% have raised guidance, while 6.1% have lowered guidance.

Below is a chart showing the difference between the percentage of companies raising guidance and lowering guidance by quarter going back to 2002.  If earnings season were to end today, the reading of -0.3 would be the first negative reading seen since the first quarter of 2009.

What’s the difference between today and March 2009 when the market bottomed?

  1. Equities were extremely undervalued; today, the undervaluation is less than 10%.
  2. Economic green shoots were springing up here and there; today, signs of economic weaknesses are almost everywhere.
  3. US inflation was very low; today, inflation is much higher and accelerating.
  4. Crude oil was $50 and US gasoline prices were below $2.00/g; today, oil is nearly $100 and gas prices flirt with $4.00.
  5. China and other emerging countries were strong and under economic and monetary stimulation; today, China is tightening, as are most ECs, to fight inflation.
  6. Economic and monetary stimulation was underway; today, what’s left in the ammo box?


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