Earnings season overview, and the big winners and losers

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Now that around 90% of the S&P 500 have reported earnings for the calendar second quarter, we can get a sense of how this earnings season has performed.

Data from FactSet shows that 83% of the index beat earnings estimates, with 64% exceeding revenue forecasts. While 10% of the index is still yet to report earnings, if 83% beat forecasts overall, then it will be the strongest performance since the financial crisis. However, while estimates have been surpassed at a high level, the actual performance of companies has been much worse. At present, earnings are down nearly 34%, the worst performance since the first quarter of 2009.

As the chart below from FactSet shows, the strongest earnings performance in terms of positive surprises was in the information technology and materials sectors, where 93% and 92% of the companies in this sector beat forecasts. This compares to 60% in real estate and 68% in energy:

Consumer discretionary firms beat earnings estimates by over 100%, with industrials the next strongest at 75% with the S&P 500 beating estimates by 22.4%:

While beating estimates saw an average price change on the day by 1.1%, which is above the five-year average of 0.9%. But earnings misses were punished more severely, with a one-day decline of 1.9% although this was better than the five-year average of -2.6%.

The winners and losers

FactSet also looks at the biggest surprises on the positive and negative side too. While Amazon was one of the most impressive performers, beating forecasts by nearly 600%, the top spot goes to Diamondback Energy Inc which exceeded estimates by a remarkable 1400%, a rare outperformer in one of the weakest sectors:

While Regions Financial Corp suffered the worst performance in terms of missing forecasts, reporting earnings that were over 750% below expectations, NIKE Inc (All Sessions) also did poorly, missing by 670% as consumers reined in spending:

Earnings outlook still clouded by Covid-19

Q2 earnings season is likely to have been one of the worst on record. But the crisis is not over, and while economic data have rebounded to an extent, the virus has not gone away entirely. As a result, we should expect Q3 earnings to be a difficult period as well, which may prove interesting as the reporting season falls in October, just ahead of the presidential election.