EC Making Sense Of Q3 Earnings Season

With results from almost 40% of S&P 500 members already out, we have a representative enough sample to judge the Q3 earnings season. The market has generally been appreciative of the results, with the median index member up almost four times as much in response to its Q3 earnings report relative to the preceding period.

We look at three metrics in evaluating the aggregate picture emerging out of any reporting cycle. These include the growth rates for earnings and revenue, the beats percentages, and management guidance for the coming periods. Let’s take a look at the Q3 results that have come out already in terms of these three performance metrics. 

EPS & Revenue Beats Percentages

For the 199 S&P 500 members that have reported results through Friday, October 25, 78.4% are beating EPS estimates and 61.8% are beating revenue estimates. The comparison charts below put these Q3 beats percentages in historical context.

Over the last 12 quarters, the low EPS beats percentage for these 199 index members was 66.3% (2018 Q4) and the high was 82.4% in 2018 Q2, with an average EPS beats percentage of 76.5%. The EPS beats percentage in Q3 started out very high, but currently remains within the 12-quarter range.

On the revenues side, the beats percentage for this group of 199 index members has been as low as 46.7% (2015 Q3) and as high as 77.4% (2017 Q4) over the preceding 12-quarter period. As is the case with the EPS beats percentage, the Q3 revenue beats percentage remains within this historical range.

In other words, S&P 500 members are beating EPS and revenue estimates at a rate that is about in-line with historical trends, as you can see in the chart below that tracks the proportion of these 199 index members that have beaten both EPS and revenue estimates.

Q3 Earnings & Revenue Growth

For the 199 index members that have reported Q3 results already, total earnings are down -0.3% while total revenues are up +4.5%. Please note that ‘total earnings’ mean ‘aggregate net income’ for the 199 S&P 500 members, not mean, median or market-cap a weighted EPS. We prefer looking at net income as a measure of earnings and not EPS given the distorting effects of share buybacks on EPS-based growth rates.

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