In numerous reports over the last several months for both clients and on the blog, we have repeatedly highlighted the positive impact of earnings and the reaction of investors to them as an important driver for the market. In recent quarters, the percentage of companies exceeding EPS forecasts has consistently been strong in the mid-60% range. Earnings season doesn’t really kick off for another two to three weeks, so it will be impossible until then to see if any of the strong earnings trends are shifting. That being said, early indications haven’t been positive. Using our Earnings Report Screener, we found that in what was an admittedly limited sample size, the twelve companies that reported earnings last week generally had weak results and even weaker stock price reactions.
As shown in the table below, only twelve companies reported earnings last week, but of those, just seven exceeded bottom line EPS forecasts, while only six beat on the top line. A number of these companies were small-cap companies, but FedEx (FDX) had a pretty notable EPS miss, while Oracle (ORCL) missed on the top line, which led both to decline on their earnings reaction days. Overall, stock price reactions were, to put it mildly, bad. Of the 12 companies reporting EPS last week, ten of them saw declines on their stock price reaction days for an average decline of 4.28% and a median drop of just over 5%. Again, it’s a limited sample size, but if Q3 earnings season comes in as bad as these early indications, it could be a long Fall.