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- At the start of November, 81% of S&P 500 companies have reported quarterly earnings.
- So far, earnings per share have exceeded analyst expectations and resulted in bigger-than-usual market reactions, according to a Monday note from Bank of America Merrill Lynch.
- Companies are giving mixed signals about what to expect in the fourth quarter and full-yaer 2020, the analysts wrote.
- Here are Bank of America Merrill Lynch’s three main takeaways from earnings season so far.
- Read more on Business Insider.
November marks the start of the fifth week of 2019’s third-quarter earnings season. After the first four weeks, 357 S&P 500 companies – or 81% of all earnings – have reported, according to Bank of America Merrill Lynch’s earnings tracker.
Results for reported companies have come in 3% above consensus,” according to a Monday note from BAML analysts led by Savita Subramanian.
And, as evidenced by the major gains seen in Apple and Facebook stock after each company reported solid earnings, better-than-expected earnings performances have led to outsized market reactions from investors, according to the note.
“Stock reactions following earnings have been slightly bigger than usual this earnings season in both directions,” the analysts wrote. Companies that have beat on EPS and sales have outperformed the broader market by 1.9 percentage points the next day, above the historical average of 1.6.
On the flip side, companies that have missed on both sales and EPS have underperformed the S&P 500 by 2.8 percentage points, which is lower than the historical average of 2.4, according to BAML.
With that established, here are three main takeaways from earnings season so far, according to analysts at Bank of America Merrill Lynch.
1. Earnings have largely beat expectations
- Bank of America Merrill Lynch
“With 80% of earnings reported, 65% of companies have beaten on EPS so far,” the analysts wrote. This is above the historical average of 56%, according to the report, and comes in above the 62% that beat in the second quarter.
Sales are down slightly, with 52% of companies reporting sales beats versus 57%, the historical average. But, because earnings have been so strong, they’ve offset weakness in sales – 41% of companies have beaten on both EPS and sales, more than the average of 37%.
2. Still, forward-looking estimates for 2019 and 2020 are being cut
- Bank of America Merrill Lynch
“Despite better-than-expected 3Q earnings so far, forward estimates have continued to fall for 4Q and 2020, led by Consumer Discretionary, Energy and Industrials,” the analysts wrote.
Consensus EPS estimates for the fourth quarter have been lowered by 3%, according to the note. Where big beats drove EPS for the quarter, a couple of big misses on EPS guidance weighed on the consensus.
“GM, Boeing, and Amazon drove >40% of the downward revision,” the analysts wrote.
3. Companies have shown resilience against a backdrop of tariffs and wage inflation, and are feeling optimistic
- Bank of American Merrill Lynch
While S&P 500 non-financial net margins of 11.2% came in below highs from a year ago, the analysts say “they have encouragingly seen typical seasonal sequential increases over the last two quarters despite these pressures.”
They continued: “Most notably, industrials, which arguably should have seen the biggest margin pressure from tariffs and wage inflation, are expected to return to peak margin levels seen in 2Q18 (10.4%),” the analysts wrote.
This could be why some companies are “much more optimistic tone than in recent quarters,” according to the note. 43% of companies mentioned the word “optimistic” or “optimism” during earnings, above the average of 37% in the last two quarters.