S&P 500 21Q1 Earnings Review: Gauging The ‘New’ Earnings Season

Sixty percent of constituents have reported 21Q1 earnings as of April 30 and the quarter is on track for the record books for three reasons:

  • The 21Q1 earnings growth rate of 46.3% is the highest since 2010 Q1.
  • Of the 303 constituents that have reported earnings, 87.1% have beat analyst expectations. This is the highest on record (since 1994).
  • Companies are reporting earnings 22.8% above analyst expectations, which is the second-highest on record (since 1994).

Exhibit 1: S&P 500 Constituents with Earnings Beats

Companies have been handily beating analyst expectations for the last few quarters and this trend shows no sign of abating. The 87.1% beat rate compares to a long-term average of 65.4%. At a sector level, Consumer Discretionary leads the pack with a 96.8% beat rate (50% of constituents have reported thus far). This is followed by Information Technology (94.6% beat rate and 49.3% reported) and Financials (92.7% beat rate and 84.6% reported).

While we have seen the highest beat rate on record in 21Q1, the amount companies are beating by is also at record levels. The earnings surprise of 22.8% compares to a long-term average (since 1994) of 3.6% and a prior four-quarter average of 15.2%.

A combination of a record beat rate and surprise factor has led to the dramatic improvement in the 21Q1 earnings growth rate.

Retail metrics

In the retail arena, positive revenue, earnings growth rates and Same Store Sales are traditionally strong metrics when companies report earnings. This year, however, a positive growth number isn’t necessary a sign of business profit. Moreover, a negative single digit growth rate could suggest that strong business has held up.

This Q1 earnings season is unusual because it marks the beginning of stay-at-home orders from a year ago. Same Store Sales (SSS), a metric used to measure retail sales for stores open at least a year are also referred to as Comparable Store Sales. The issue is there is no comparable year to 2020. Never before has there been a government mandate for retailers and companies to close their physical business. As a result, several retailers didn’t report SSS and many companies withdrew guidance back in Q1 2020.

Nevertheless, we are seeing strong momentum thus far. The 21Q1 earnings growth has improved 22.1 percentage points since the beginning of earnings season, which currently ranks as the largest increase ever since Refinitiv began tracking this data. This compares to a long-term average (since 2002) of 2.5 percentage point earnings growth improvement between the start and end of earnings season.

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