Research Blog

Q4 Peak Earnings Season Begins

Why we're more interested in industrials than big tech this week.

This week marks the beginning of peak earnings season for the fourth quarter, with 955 of the most important publicly traded companies expected to release results worldwide, from the Wall Street Horizon universe of 8,500+ names. With a few hundred reports under our belt at this point, one trend has become clear, analyst estimates appear to be way too low once again, just as they were in Q2 and Q3. We know the sell side leans heavily on corporate guidance, never straying too far from those numbers in order to keep the lines of corporate access open. We also know companies issue conservative guidance so they beat expectations and see a pop in their stock price on reporting day. The COVID-19 pandemic has only exacerbated that trend. 

According to FactSet, 86% of S&P 500 companies that have reported thus far have beaten EPS estimates, vs. the 5-year historical beat rate of 74%. The second and third quarter saw 84% of companies surpassing Wall Street earnings estimates. This of course means the expected profit growth rate for the index gets pushed higher, on average over the last 5 years by about 4 percentage points from the beginning of season expectation to the final reading. Already we’ve seen the Q4 EPS growth rate estimate improve to -4.7% from -9.2%. 

We will soon get more clarity on where things are headed for the fourth quarter as reporting starts to heat up this week with 118 S&P companies and 612 North American listed companies releasing results. Earnings season is at its highest from the weeks of January 24 to February 21.

This week all eyes will be on big tech with Microsoft out on January 26 after the market close (AMC), and Apple, Facebook and Tesla all out Wednesday AMC. 

We’ll also be paying close attention to industrials this week. Many airlines have already reported dismal results, dragging the blended growth rate for the sector down, and making industrials one of the laggards this season. However, industrial companies have provided a lot of positive guidance heading into reports, atypical for the sector. This week we hear from other big names in the space such as 3M Corp. on January 26 and Caterpillar on January 29, both before the market opens.

Industrial supply companies always provide a good assessment of the health of the US manufacturing sector, and are often seen as bellwethers of global growth. Below we take a look at two mid-cap industrials names that report this week and stand out with their unusual earnings date movements, both ahead of their historical reporting window for Q4. We believe it’s important to observe when a company strays from their typical release date. These changes can be highly predictive of how a company will report, especially when looked at in conjunction with other factors and fundamentals.

Badger Meter (BMI)

Company Confirmed Report Date: Friday, January 29, BMO
Previously Inferred Report Date (based on historical data): February 5, BMO

BMI is a midcap electric equipment company that recently expanded their water quality offering with the acquisition of Analytical Technology Inc on Jan 8. On January 5, Badger confirmed they will report Q4 results on Friday, Jan 29 BMO. Over the last 3 years Badger has regularly reported Q4 earnings on February 5, and in our 15 year history the company has never reported outside of the February 4 - February 7 range. BMI has a DateBreaks Factor* of 3, meaning there is a high positive deviation from the historical trend for the same quarter, indicating potential good news.

RBC Bearings Inc. (ROLL)

Company Confirmed Report Date: Friday, January 29, BMO
Previously Inferred Report Date (based on historical data): February 4, BMO

Here is another midcap industrial name moving their date forward. ROLL provides bearings products to industrial, aerospace and defense industries. Similar to Badger, they also regularly report for Q4 between February 4 - 8, but this year moved their report date up to Jan 29. RBC Bearings has a DateBreaks Factor of 3, meaning there is a high positive deviation from the historical trend for the same quarter, indicating potential good news.

While this theory doesn’t always hold, academic research shows that an earnings date that is pulled forward is typically a sign that the company has good news to share, while moving a release date back would suggest the opposite. (See: Johnson, Travis L. and Eric C. So. “Time Will Tell: Information in the Timing of Scheduled Earnings News.” 2017.

Next week peak season rolls on with 1,088 companies reporting, including those with unusual earnings date patterns which we will be analyzing: Harley Davidson, Toyota, Align and Biogen.

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 dates 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.

If you are interested in learning more about our methodology, please contact us at: