Last Peak Week Of Q2 Earnings Season Is Here, Then Come The Retailers

 | Aug 08, 2022 10:26AM ET

  • S&P 500 EPS growth for Q2 is set to come in at 6.7%, the lowest level since Q4 2020

  • Some highly anticipated names reported last week, with upbeat results from SBUX, ABNB, CAT

  • The LERI points to more companies showing signs of uncertainty regarding future growth potential

  • Potential surprises this week: TTWO, AKAM, SKT, H, SIX

    • After getting off to somewhat of a rough start, with banks and big tech, Q2 earnings began to hit their stride last week. The busiest week of the season did not disappoint, with many names across sectors like health care, technology and consumer discretionary handily beating expectations. Those positive surprises were initially enough to convince investors to take markets higher mid-week, but higher-than-expected jobless claims killed the rally on Thursday, with impressive nonfarm payrolls able to bring the markets back on Friday ending the week mostly flat.

    Better-than-expected results lead to a 0.7-percentage-point increase in S&P 500 EPS YoY growth rate in the last week, which now sits at 6.7%. Thus far, 75% of companies are beating estimates, still lower than the five-year average of 77%. The percentage by which companies are surpassing estimates also remains low at 3.4% vs. a 5-year average of 8.8%. Q3 earnings expectations are trending lower as well, now down to 5.8% from 10.4% on June 30. (Data From FactSet)

    Despite Improvement In Earnings Results, LERI Reading Worsens

    Despite better-than-expected earnings, the Late Earnings Report Index (LERI) is still at its highest level in over a year, with a reading of 150, surpassing Q1 2020’s reading of 147, which reflects the uncertainty of the first few weeks of coronavirus lockdowns globally.

    The LERI tracks which companies are confirming off-trend earnings dates. Academic research shows when a corporation reports earnings later in the quarter than it has historically, it typically signals bad news to come on the conference call. The reverse is also true, an early earnings date suggests good news will be shared. The idea is that you’d prefer to delay bad news, but when you have good news you want to run out and share it.

    A LERI reading over 100 indicates more companies are delaying reports and is meant to be watched carefully. While the LERI reading of 150 is the highest we’ve seen since Q4 2020, it’s still nowhere near as high as we saw in the last three quarters of that year in the midst of the COVID-19 pandemic and lockdowns. Those quarters clocked LERI readings of 1,380, 656 and 309, respectively. In any case, a gradual increase this quarter continues to suggest that U.S. companies are feeling uncertain about their future growth potential. In terms of raw numbers, 48 companies have confirmed earlier Q2 earnings dates, while 72 have confirmed later than normal earnings dates.

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