Research Blog

Earnings season kicks off with a bang - expected profit growth now at a 10 year high

Executive Summary

  • Q1 earnings season coming in hot with all big banks beating estimates last week; S&P 500 growth rate moves up to 30.2%
  • Shareholder meetings pick up this week, and will remain heavy through June
  • Outliers for this week include Armstrong Flooring and CACI International

Earnings season kicked off with a bang last week, with all of the banks beating expectations by double digit margins. In fact, Morgan Stanley (MS) had the lowest beat rate vs. Wall Street estimates of 29% when they reported on Thursday, while Goldman Sachs (GS) had the highest margin of 82%. So far, high corporate guidance, increasing analyst estimates, and other positive signs such as early earnings confirmation dates have been spot on.

Other notable beats last week included Pepsi (PEP) and Bed Bath and Beyond (BBBY). Delta Airlines (DAL) on the other hand missed EPS by $0.38 on account of Passenger Revenue per Available Seat Mile (PRASM) which remained down ~50% YoY, but guidance for the second half of the year is looking up. The airline expects to break even in June, but will still post a pretax loss of ~$1.5B in Q2. CEO Edward Basitian commented on the conference call that the surge in bookings in the last couple of months is a sign that the business is making a turn for the better.

The blended growth rate continues its climb higher on the back of better than expected results and higher estimates. Currently, FactSet has a blended EPS growth rate of 30.2% for the S&P 500, which would be the highest result in over 10 years.

Confirmation rates still high

Our indexed universe (~1364 names) shows the highest confirmation rate in the last 5 years at this point in the season, driven by Non-North American companies.



Shareholder meetings heat up this week

It’s not just earnings season investors have to pay attention to, but we are now in prime Shareholder Meeting season, with 255 meetings expected to take place this week. That number will remain high through June 28.


Unusual movements to pay attention to this week

Armstrong Flooring (AFI)

Company Confirmed Report Date: Thursday, April 22, BMO
Previously Inferred Report Date (based on historical data): May 6, BMO
Z-Score: -5.91
DateBreaks Factor**: 3

Since Armstrong Flooring separated from Armstrong World Industries in 2016 they have always reported Q1 results in the first week of May, usually around the 7th or 8th of the month, with no day of the week trend. Based on that we set a Q1 report date of May 6. On April 13 AFI confirmed they would release Q1 earnings on Thursday, April 22. This change resulted in a high Z-score of -5.91. 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 AFI is getting ready to surprise to the upside. Z-score is also incorporated into our DateBreaks Factor**, for which AFI has a factor of 3, meaning there is a high positive deviation from the historical trend for the same quarter.

The home improvement industry continues to boom in the wake of COVID-19. Unlike competitors such as Lumber Liquidators which focuses primarily on hardwood flooring, a large part of Armstrong’s business is around engineered wood and vinyl flooring. This comes into play as lumber prices are at all-time highs (up 375% YoY), and while this increases input costs for flooring manufacturers it’s likely those are just getting passed onto customers as demand continues to overwhelm supply.

 

CACI International (CACI)

Company Confirmed Report Date: Wednesday, April 21, AMC
Previously Inferred Report Date (based on historical data): April 28, AMC
Z-Score: -4.11
DateBreaks Factor: 3

Over the last 5 years CACI has reported Q1 (their fiscal Q3) results on either the last Wednesday of April or first Wednesday of May. Based on that we set a Q1 report date of Wednesday, April 28. On April 9 CACI confirmed they would release Q1 earnings on Wednesday, April 22. This change resulted in a high Z-score of -4.11. 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 CACI is getting ready to surprise to the upside. Z-score is also incorporated into our DateBreaks Factor**, for which CACI has a factor of 3, meaning there is a high positive deviation from the historical trend for the same quarter.

CACI is a cybersecurity company that works with the Department of Defense and other national security agencies to build innovative technologies. They recently announced a $500M buyback program to be completed by the end of the year with the goal of returning value to shareholders. CACI is also likely to benefit from increased government spending associated with the upcoming infrastructure bill.

Next week we will see 209 companies report worldwide, with 161 in North America.


 


The DateBreaks Factor is a Wall Street Horizon proprietary measure, using a modified z-score protocol which looks at standard deviations from the norm and that captures the extent to which a confirmed earnings date deviates or breaks from historical trend (last 5 years) for the same quarter.

Negative means the earnings date is confirmed to be later than historical average while Positive is earlier.


 

  • *Note these figures represent the percentage of companies in our universe that have confirmed earnings dates as of April 8 in their respective year.
  • *North American Index - 878 North american indexed companies (slightly lower for prior years). That is in the DOW30, NASD100, S&P500, and F1000.
  • *North American All - Based on ~6460 North American companies currently in our universe (slightly lower for prior years).
  • *Non-North American Index - Based on 486 Non-North American indexed companies which reside in the Nikkei, FTSE, NIFTY50, HANGSENG, CAC, and DAX.
  • Non-North American All - Based on ~2725 North American companies currently in our universe (slightly lower for prior years).
  • All Index - Combination of previously mentioned companies in the DOW30, NASD100, S&P500, F1000, Nikkei, FTSE, NIFTY50, HANGSENG, CAC, and DAX.
  • All All - Our entire universe covering ~9,185 names