The first quarter earnings reporting period unofficially came to an end earlier this week, and it should be considered quite a success given how well the equity market performed during this time period. Since earnings season began on April 13th, the S&P 500 (SPY) has gained more than 5%. Of course, the market’s performance over the last month or so has much more to do with expectations on re-opening than how companies reported in Q1, but all things considered, the sky didn’t fall when it came to earnings results.
In terms of how actual earnings reports came in versus analyst expectations this past earnings season, the trend wasn’t all that rosy. We’ve been tracking “beat rates” for more than a decade, which measure the percentage of companies reporting stronger than expected EPS and sales numbers (relative to consensus analyst estimates). Our main “beat rate” trackers show beat rates on a rolling 3-month basis — meaning it looks at all companies that have reported earnings over the last three months and tells you what percentage of them beat analyst estimates.
Below is a snapshot of both bottom-line EPS and top-line sales beat rates over the last five years as displayed on our website at our “Earnings Explorer” page. Notably, bottom-line EPS beat rates have been weakening quite dramatically over the last couple of months since the COVID crisis began. Just this week, the 3-month rolling EPS beat rate dipped below its long-term average of 59.37% dating back to the year 2000.
On the other hand, top-line sales beat rates haven’t taken quite the hit yet. The current sales beat rate stands at 60.67%. While sales on an absolute basis fell dramatically at the end of Q1, the fact that sales beat rates haven’t fallen dramatically means companies have at least managed to keep up with analyst expectations. A very weak sales beat rate would have meant companies were reporting numbers even weaker than already dour analyst expectations.
We also have a forward guidance tracker that measures the percentage of companies raising guidance versus the percentage of companies lowering guidance. When this reading turns negative, it means more companies have lowered guidance than raised guidance over the last three months. As shown below, right now our guidance spread stands at -16.08 percentage points, which is the weakest reading we’ve seen since early 2016.
One thing we’ve seen since the COVID crisis began is that more and more companies have withdrawn guidance altogether. It’s hard to blame them. The ones that have issued guidance have mostly lowered expectations. While this paints a bleak picture for the future, if you look at this from a “glass half full” perspective, it actually leaves much more room for positive surprises down the road. To access our beat rate and guidance spread trackers with even more historical data, start a two-week free trial to Bespoke Institutional today. A free trial with give you full access to our Earnings Explorer tool and all of our other popular investor tools, plus a wide variety of unique equity market and economic research from Bespoke.