The First Peak Week of Earnings Season Brings Some Good News

• S&P 500 EPS growth for Q2 2023 is set to come in at -7.3%, the lowest rate in 3 years and the third consecutive quarter of negative earnings growth

• Potential surprises this week: Norwegian Cruise Lines, Zillow, Hasbro

• The second week of peak earnings begins, with Thursday August 3 anticipated to be the busiest day of the season

After a rough beginning to earnings season, the peak season got off to an impressive start last week, with many highly-anticipated companies reporting better-than-expected results. Big tech in particular led the rally last week, with the Nasdaq Composite closing nearly 2% higher by Friday. While Microsoft (MSFT) surpassed expectations on the top and bottom-line, it was lower sales projections for Q3 that caused shares to fall 4% in after-hours trading. Alphabet (GOOGL) and Meta (META) on the other-hand both handily beat estimates and saw their stocks rewarded. For Alphabet, it was better-than-expected cloud revenue growth that investors responded to, and for Meta it was evidence that the “year of efficiency” initiatives are paying off.  

The leisure and travel space continued to be a bright spot with Hilton Worldwide (HLT) and Royal Caribbean Cruises (RCL) emerging as winners after positive earnings reports last week. But it was guidance from the airlines that dampened the travel outlook for the second half. Alaska Air exceeded analyst estimates for Q2, but gave a lackluster outlook for Q3 which included revenue growth of only 0 - 3%. Southwest Airlines (LUV) reported EPS that was in-line, and revenues that slightly surpassed expectations, but warned that revenue per available seat mile (REVPAR) would dip in Q3. As a result many of the major carriers saw their stocks impacted as worries set in about softening travel demand in the second half of the year. 

Another area to watch this earnings season has been any company linked to Barbie. While the feature film wasn’t released until July 21 (Q3), those with Mattel (MAT) licensing deals are already predicting a bump in sales thanks to movie-related merchandise. Mattel itself reported last week, beating Wall Street’s expectations on the top and bottom-line, but still falling on a YoY basis as consumers remained tight with their discretionary income. Next quarter analysts are predicting a return to YoY growth for both earnings and revenues, after three consecutive quarters of declines. Company guidance for the second half of the year included significant growth for Barbie-related sales, both from licensing deals and Barbie toy and merchandise sales. Crocs (CROX) also reported last week, beating estimates and recording 11% YoY growth on the top and bottom-line, and a record for quarterly revenue which topped $1B. Robust results were in part due to the popularity of their limited edition Barbie clog which sold out on the day of its debut. 

The overall S&P 500 blended EPS growth rate improved to -7.3% from -9.0% the week prior. This would still be the lowest growth rate since Q2 2020, but it’s a marked improvement from a week earlier which could bode well for the rest of the season.

Potential Earnings Surprises this Week - NCLH, Z, HAS

This week we get results from a number of large companies on major indexes that have pushed their Q2 2023 earnings dates outside of their historical norms. Seven companies within the S&P 500 confirmed outlier earnings dates for this week, five of which are later than usual and therefore have negative DateBreaks Factors*. Those five names are Amazon (AMZN), Altria Group (MO), Rockwell Automation (ROK), Hasbro Inc. (HAS) and Stryker Corp. (SYK).  According to academic research, the later than usual earnings dates suggest these companies will report “bad news” on their upcoming calls. Norwegian Cruise Line Holdings (NCLH) and Sysco Corporation (SYY) confirmed earlier than usual dates, suggesting they will report “good news” on their upcoming calls.  

Norwegian Cruise Lines (NCLH)
Company Confirmed Report Date: Tuesday, August 1, BMO
Projected Report Date (based on historical data): Tuesday, August 8, BMO
DateBreaks Factor: 3*

Norwegian Cruise Lines is set to report Q2 2023 results on Tuesday, August 1. This is a week earlier than expected, which bodes well for the cruiseliner. For the last 8 years NCLH has reported Q2 results in the 32nd or even 33rd week of the year, typically from August 4 - 9. 

Academic research shows when a corporation reports earnings earlier than they have historically, it typically signals good news to come on the conference call. This narrative could make sense for NCLH considering the strong demand for travel this summer, and how US consumers continue to allocate discretionary income to leisure activities. Peer cruiseliner Royal Caribbean noted this trend in their Q2 report last week when they blew expectations out of the water. 

Zillow Group (ZG)
Company Confirmed Report Date: Wednesday, August 2, AMC
Projected Report Date (based on historical data): Thursday, August 3, AMC
DateBreaks Factor: 3*

Zillow is another name reporting this week that has a positive DateBreaks Factor going into their report. ZG is set to release Q2 2023 results on Wednesday, August 2. While this is only a day earlier than anticipated, this will be the first time in three years that they report on a Wednesday after a Thursday trend, and the first time they report in the 31st week of the year. 

Zillow’s stock recently received a bump when Piper Sandler analyst, Thomas Champion, upgraded it to overweight from neutral, encouraged by new product initiatives as well as improvements in the housing macro environment.

Hasbro (HAS)
Company Confirmed Report Date: Thursday, August 3, BMO
Projected Report Date (based on historical data): Thursday, July 27, BMO
DateBreaks Factor: -2*

Hasbro is set to report Q2 2023 results on Thursday, August 3. This is a week later than expected, and their latest Q2 report date since we began collecting data in 2006. 

Wall Street currently expects a Q2 EPS of $0.56 for HAS, a 51% decline YoY (estimates from FactSet). Revenues aren’t much better, expected to fall 17% on a YoY basis. Pushing the date later makes it appear that even these low expectations will not be met, likely due to the consumer’s continued hesitance to spend on certain discretionary items like toys. 

On Deck This Week

This week marks the second week of peak earnings season where we expect to see 2,595 companies (out of our universe of nearly 10k) report. Big tech continues to be in focus with Apple and Amazon reporting. Last week we noted that Amazon had confirmed their latest Q2 earnings date since we began collecting data in 2006, which doesn’t bode well for what will be shared on the call. 

Source: Wall Street Horizon

Q2 2023 Earnings Wave

This season peak weeks will fall between July 24 - August 11, with each week expected to see nearly 2,000 reports or more. Currently August 3 is predicted to be the most active day with 973 companies anticipated to report. Thus far only 73% of companies have confirmed their earnings date (out of our universe of 9,500+ global names), so this is subject to change. The remaining dates are estimated based on historical reporting data.

Source: Wall Street Horizon

¹ https://advantage.factset.com

* Wall Street Horizon DateBreaks Factor: statistical measurement of how an earnings date (confirmed or revised) compares to the reporting company's 5-year trend for the same quarter. Negative means the earnings date is confirmed to be later than historical average while Positive is earlier.