US earnings season proving a mixed bag

Most US companies are beating earnings estimates, but investors aren’t happy.

Compared to Europe, US earnings season looks impressive. A normal percentage of European companies are beating earnings estimates, says Bank of America, but just 34 per cent are beating sales estimates – the lowest level since early 2014 and way below long-term norms.

In contrast, FactSet data shows 78 per cent of S&P 500 companies have beaten earnings estimates and 62 per cent have topped sales estimates. Nevertheless, only 38 per cent of companies reporting are enjoying a positive share price reaction, says Crossmark Global Investments.

Concurring, FactSet notes companies that beat expectations are still seeing their share price fall, while companies that miss estimates are seeing especially heavy declines. Why? Weak guidance.

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Bloomberg data shows the phrase “weak demand” keeps cropping up on US earnings calls. Consequently, estimates for fourth-quarter earnings are being cut more than usual. The takeaway: companies are doing pretty well right now, but they’re increasingly concerned regarding coming quarters.