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Positive Earnings Fail to Sway Investors
Last week was another rollercoaster ride for markets as investors digested everything from weaker-than-expected Q1 US GDP and the most recent Personal Consumption Expenditures Price Index (PCEPI) which showed continued inflationary pressures to mixed results from big tech earnings and a falling University of Michigan Consumer Sentiment reading.
On the earnings front, the Q1 season continues to come in better-than-expected. The first four reports from the Magnificent 7 were out last week. Tesla (TSLA) has been a relative downer this year, and despite missing Q1 EPS and revenue expectations when they reported on Tuesday, it was news that the production of a new affordable electric vehicle would begin in 2025 that caused investors to bring the stock up nearly 20% since that report.1
Meta Platforms (META) was up next with results out on Wednesday after the close, and while they were able to handily surpass expectations on the top and bottom line, it was weak revenue guidance and comments from CEO Mark Zuckerberg on AI and mixed reality spending that caused the stock to tumble after the report.2
Thursday brought more upbeat earnings results and market reactions when Alphabet (GOOG) (GOOGL) and Microsoft (MSFT) both reported better-than-expected. Alphabet’s 15% year-over-year (YoY) EPS growth was the fastest growth rate in two years, driven by strong YouTube ad revenue and Google Cloud strength.
Robust results led to the company offering its first-ever dividend and announcing $70B in share repurchases.3 Microsoft saw robust growth in their cloud segment on the back of AI demand in the first quarter, and despite issuing slightly softer revenue guidance for their fiscal Q4, the stock rose 2.5% in the day following their report.4
With 46% of S&P 500 names reporting thus far, YoY earnings growth stands at 3.5% according to data from FactSet.5 That’s with 77% of companies surpassing analyst expectations, above the 10-year average, on par with the 5-year average and just a little lighter than the 1-year average of 78%.
Where there is concern this season, however, is with revenues, with just slightly more than half of reports surpassing Wall Street estimates on the top-line, that’s lower than the 1, 5 and 10-year averages.
Not only are fewer companies beating on revenues, but they are doing so by a much smaller margin of 1.3%, well below the 5-year average of 2.0%. This may explain why investors seem less jazzed with results this season, rewarding positive surprises by less than average and punishing negative surprises more than usual.
Earnings beats are coming by way of cost-cutting, not revenue strength, which is what investors want to see. Cost reductions can only go so far before it starts to affect the business, revenue strength is a superior driver of EPS growth.
On Deck this Week – Amazon, Apple and More
The Magnificent 7 are still the biggest drivers of growth this season. Investors were looking for more broad-based growth among sectors starting this year, which remains to be seen.
We hear from two more of these names this week when Amazon (AMZN) reports results on Tuesday, April 30, followed by Apple (AAPL) after-the-bell on Wednesday, May 1.
Source: Wall Street Horizon
Outlier Earnings Dates this Week
Academic research shows that when a company confirms a quarterly earnings date that is later than when they have historically reported, it’s typically a sign that the company will share bad news on their upcoming call, while moving a release date earlier suggests the opposite.6
This week, we get results from a number of large companies on major indexes that have pushed their Q4 2023 earnings dates outside of their historical norms.
Three companies within the S&P 500 confirmed outlier earnings dates for this week, all of which are later than usual and therefore have negative DateBreaks Factors*. Those names are The Coca-Cola Company (KO), 3M Corp. (MMM) and The Hershey Company (HSY).
* Wall Street Horizon DateBreaks Factor: Statistical measurement of how an earnings date (confirmed or revised) compares to the reporting company’s 5-year trend for the same quarter. Negative means the earnings date is confirmed to be later than historical average, while Positive is earlier.
The Hershey Company
Company Confirmed Report Date: Friday, May 3, BMO
Projected Report Date (based on historical data): Thursday, May 2, BMO
DateBreaks Factor: -3*
The Hershey Company is set to report Q1 2024 results on Friday, May 3. While this is only one day later than expected, this breaks from their strong Thursday reporting trend, and marks the first time they have ever released results on a Friday. This would also be the first time they’ve reported Q1 in May, according to our data which goes back to 2006.
Last quarter, Hershey missed revenue expectations, causing the Staples name to fall over 3% by the next day.7 For a majority of the Q2 sell-off, defensive sectors such as Consumer Staples were a lagging sector (excluding the week of April 15-19 when Staples lead), as cyclicals continue to outperform in this higher interest rate environment. According to analyst estimates collected by FactSet, Hershey is expected to post a 7% YoY decline in EPS for Q1.
Q1 Earnings Wave
This season’s peak weeks will fall between April 22-May 10, with each week expected to see over 1,500 reports. Currently, May 9 is predicted to be the most active day with 1,236 companies anticipated to report.
Thus far, 70% of companies have confirmed their earnings date (out of our universe of 10,000+ global names), so this is subject to change. The remaining dates are estimated based on historical reporting data.
Source: Wall Street Horizon
[1] Tesla Releases First Quarter 2024 Financial Results, Tesla, April 23, 2024.
[2] Meta Reports First Quarter 2024 Results, Meta Platforms, Inc., April 24, 2024
[3] Alphabet Announces First Quarter 2024 Results, April 25, 2024
[4] Earnings Release FY24 Q3 – Microsoft Cloud Strength Fuels Third Quarter Results, April 25, 2024
[5] EARNINGS INSIGHT, FactSet, John Butters, April 26, 2024
[6] Time Will Tell: Information in the Timing of Scheduled Earnings News, Journal of Financial and Quantitative Analysis, Eric C. So, Travis L. Johnson, Dec, 2018
[7] Hershey Reports Fourth Quarter and Full Year 2023 Financial Results; Provides 2024 Outlook, The Hershey Company, February 8, 2024