Q2 Earnings Surprises Masked Weaker Revenues

By Walter Kurtz, Sober Look

Analysts have been pointing out that earnings for the S&P500 companies continued to surprise to the upside for Q2 results. The top-line numbers however were not nearly as impressive. In fact this has been the lowest percentage of positive revenue surprises since at least 3Q09 (see figure 1 below).

Nasdaq: – While roughly two-thirds of companies beat earnings expectations, the beat ratio on the revenue front is far weaker – only 37.6% of the companies have beat revenue expectations. Even some of these companies with positive revenue surprises for the second quarter have guided towards lower revenue numbers in the coming quarters. This does not bode well for growth in the coming quarters.

The global macro pressures have impacted revenues far more because of a sharp decline in commodity prices that helped improve margins.

Barclays Capital: – The global growth slowdown has had more of an impact on revenues, as margins were aided by a sharp drop in commodity prices in the second quarter. Additionally, … companies have begun to cut their forward financial outlooks, suggesting that macro concerns are beginning to weigh on corporate operating performance.

Given the recent reversal in commodity price declines, the ongoing macro concerns, and lower revenue guidance in the coming quarters, the Q3 earnings picture now looks far less certain. The strong market performance in recent weeks however seems to be ignoring this development.

(Source: Barclays)


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Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

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  • Sam

    Actually, this isn’t so surprising.

    World trade volume has already peaked and entered decline:


  • micro2macro

    I suppose this is simply like the last 3 years where pundits have said the future looks bad (it always does according to some people), and then of course it does not turn out that way.

    Why do people insist on basing their assessments on earnings estimates/expectations? Analysts are as useless as everybody else and probably even worse in discussing expectations. So my earnings double (reality) and my share price goes down because I did not beat “estimates/expectations” (guess). I’ll take reality thanks.

  • http://www.adsanalytics.com adsanalytics

    Will be interest to see once margins begin diverging from EPS – a signal of leveraging by businesses (i.e. EPS is made from leveraging eg share buybacks rather than sales). In particular, when EPS continues to decrease while margins compress, it is a sign that a bubble is probably forming.


    ADS Analytics

  • http://pragcap Michael Schofield

    If you think it’s crazy now (I do) wait until people start chasing. Yes, some day Mr. Market will have to quit going up. Adapt or die. The ultimate market truth, if there is one, is price.

  • freemarketeer

    Uh, the most obvious reason would be the stronger dollar (I don’t know how many companies in the S&P are that international, but all the big/important ones are). It’s impossible to figure out the revenue effect from the outside, but when companies hedge or put costs in those same regions, the net effect is de minimus.

    Not saying nothing is wrong, but let’s not forget Occam’s Razor.