It’s going to take more than record earnings to impress investors this season

Key Takeaways:

• Q2 earnings season off to a great start, but investors not always rewarding big beats, more focused on forward looking forecasts
• 33% of companies (universe of 9,000+) have confirmed Q2 earnings dates, peak weeks will be July 26 - August 9. July 31 is a whopper!
• Tech (IBM, TWTR, INTC) and airlines (UAL, AAL, LUV, ALK) are in focus this week
• Preliminary earnings announcements are picking up once again - STX, SHW, WELL, STLD, X, GPI
• Bullish earnings dates revisions for Rexnord Corp (RXN) and Marsh & McLennan (MMC) both out this week

Investor’s say “meh” to first batch of Q2 earnings reports

The first week of earnings season pumped out some great results, but you wouldn’t necessarily know that from how those stocks performed after reports. All of the six biggest banks (JPM, BAC, C, GS, MS, WFC) beat expectations on the bottom-line, and only Citigroup missed top-line estimates. Even so, when markets closed on Thursday only Wells Fargo had made gains since its report. Despite better-than-expected results for Q2, an array of threats that include falling net interest income due to low interest rates, declines in trading revenue due to less volatility, lower credit card loans and lower fixed income trading revenues, still have investors wondering what the second half of the year holds for banks.

Some big consumer staples names reported last week as well. Conagra Brands and PepsiCo also both beat analysts’ estimates for earnings and revenues. However, Conagra warned that inflation would negatively impact future results, while Pepsi is receiving a bump due to returning restaurant demand.

We also started to see results from the airlines. Delta’s report should serve as a bellwether for the other airlines out this week (United, Southwest, American, Alaska). Not only did they beat on the top and bottom-line but CEO Ed Bastian said that thus far the Delta variant of COVID-19 has not impacted bookings.

Due to all of the better-than-expected results, FactSet now expects YoY S&P 500 EPS growth to come in at 69.3%. Still the highest rate since Q4 2009. But as we said last week, in order to get an apples-to-apples picture of growth, we think it’s best to compare Q2 2021 to Q2 2019 (rather than Q2 2020), when doing so, growth shrinks down to ~9%, still a very respectable number.

Earnings Confirmed for Q2:

As of July 16, 50% of companies have confirmed their earnings dates for Q2, out of our universe of 9,000+. This is also inline with approximately how many companies typically confirm by this time. So far only 40 S&P 500 names have reported.

Earnings wave - Peak season on deck

We’re still not in peak season this week, but 742 companies from our universe of 9,000+ are slated to release results, with 472 in North America. 79 names within the S&P 500 are expected to report.

Earnings out this week:

The concentration this week will be in big tech names and industrials.

Preliminary Earnings Announcements

Investors should also monitor several major US-listed and European-listed names that have issued preliminary earnings over the last two months. Firms will often issue preliminary earnings announcements to send a warning flag to the market regarding unusual news or financial results in the near future. This type of corporate event often portends single-stock volatility, particularly during earnings season.

Here are some names set to report in the next couple of weeks that issued preliminary results. Among the companies on the S&P 500 to issue a preliminary announcement lately are Seagate Technologies PLC (STX), The Sherwin-Williams Company (SHW), and Welltower Inc. (WELL). Other large caps on the Russell 1000 index with preliminaries are Steel Dynamics (STLD), US Steel Corp (X), and Group 1 Automotive, Inc. (GPI).

Earnings Outliers

As always we’re keeping a close look at earnings date outliers, companies that are reporting earnings on a date outside of their historical range, which could provide a clue as to what the upcoming report and call will reveal.

We’ve got two outliers on our radar this week, and while we find it more common for a company to push earnings back, these two names are actually reporting earlier than expected.

Rexnord Corp (RXN)
Company Confirmed Report Date: Tuesday, July 20, AMC
Projected Report Date (based on historical data): August 3, AMC
Z-Score: -5.59
DateBreaks Factor: 3

Rexnord Corp is an industrials company known for their power transmission gear drives, bearings, brakes, couplings and a variety of other machinery and aerospace products. Back in February they announced they were selling their Process Motion Control segment to Regal Beloit, investors will expect to hear updates on the merger on Wednesday’s call.

Rexnord has historically reported their Q2 results between July 28 - Aug 3, with no day of the week trend. As such, we set a report date of Tuesday, August 3. On July 6 the company issued a press release stating that Q2 results would be released on July 20 AMC, with the conference call the following day at 8:00AM. This change resulted in a high Z-score of -5.59. A high negative Z-score (we consider anything higher than 3 or lower than -3 to be significant) reflects an earlier than usual confirmed earnings date, which in this case could signal that Rexnord is getting ready to surprise to the upside. Z-score is also incorporated into our DateBreaks Factor*, for which RXN has a factor of 3, meaning there is a high positive deviation from the historical trend for the same quarter.

Marsh & McLennan (MMC)
Company Confirmed Report Date: Tuesday, July 22, BMO
Projected Report Date (based on historical data): June 29, BMO
Z-Score: -3.47
DateBreaks Factor: 3

This insurance broker has continually outperformed the broader market in the last decade, partially because of their strong fundamentals. Marsh & McLennan has posted YoY earnings growth for the last 6 quarters, and revenue growth for the last 3. Wall Street analysts expect they will do the same for Q2, with FactSet currently estimating 8% growth for the top and bottom-line.

Marsh & McLennan historically has reported their Q2 results between July 26 - July 30, typically on a Tuesday or Thursday. As such, we set a report date of Tuesday, July 29. On June 24 the company issued a press release stating that Q2 results would be released on July 22 BMO, with the conference call at 8:30AM eastern time. This change resulted in a high Z-score of -3.47. A high negative Z-score (we consider anything higher than 3 or lower than -3 to be significant) reflects an earlier than usual confirmed earnings date, which in this case could signal that Marsh & McLennan is getting ready to surprise to the downside. Z-score is also incorporated into our DateBreaks Factor*, for which MMC has a factor of 3, meaning there is a high positive deviation from the historical trend for the same quarter.

Next week kicks off the beginning of peak earnings season with over 2,000 companies set to report, and all eyes will be on big tech, mainly the FAAMG names.