Earnings season came to an end last week with Wal-Mart’s (WMT) report last Thursday. Below is a look at the final top and bottom line beat rates for U.S. stocks that reported numbers this quarter. The first chart shows the percentage of companies that beat consensus analyst earnings estimates while the second shows the percentage that beat consensus analyst revenue estimates.
As shown, the earnings beat rate ended at 63%, which is actually the highest reading seen in five years going back to Q4 2010! At 52%, the top-line revenue beat rate was significantly lower than the bottom-line earnings beat rate. The positive take away from the revenue beat rate is that it was stronger than the prior quarter’s reading of just 47% and near the high end of the range from the prior three quarters
Below is a distribution chart of every single company that reported earnings this season. The vertical y-axis shows the average one-day price change (%) that the stock experienced in reaction to its earnings report. We’ve segmented the stocks by earnings beats and misses (and inline reports as well). The average one-day price change for companies that beat estimates was +1.90%, but companies that missed estimates fell an average of 3.7% on their report days. More notable is that companies that reported inline numbers fell an average of 0.73% on their report days. This shows why companies are under such pressure to “beat the number”, or report stronger than expected earnings. These day, simply meeting expectations is usually met with falling share prices.
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