B400 Companies Post Some Additional Earnings and Revenue Surprises

By John Prestbo

As the earnings-reporting season winds down for companies in the Barron’s 400 Index, the surprises in per-share profit and revenue reveal some surprises of their own.   We saw last week that the surprises are not only unevenly distributed but also are concentrated in a couple of sectors. This week, now that 90% of the Barron’s 400 component companies have reported, the basic story is the same but the nuances have changed.  

The table below shows the percentage of each sector’s reporting companies that exceeded analysts’ expectations for per-share earnings and revenues. The utilities sector was omitted because only one utility is in the Barron’s 400. For the record, Questar Corp.’s revenue was below estimates, while earnings surpassed forecasts by one cent a share.

Sector	Positive EPS Surprise	Positive Rev Surprise
Consumer Discretionary	66%	48%
Consumer Staples	84%	47%
Energy	57%	48%
Financials	72%	78%
Health Care	77%	59%
Industrials	69%	46%
Materials	50%	30%
Technology	75%	64%

Some observations:

• More companies had earnings surprises than revenue surprises. In part, that’s because earnings are more difficult to forecast than revenues are. But it’s also partly because these companies are confronting the slow-growth global economy by wringing as much profit as they can from their sometimes-sputtering revenue streams.
• Nowhere is that more evident than in consumer staples, which is the clear leader in earnings surprises. These tend to be low-margin businesses that must react quickly to fickle shoppers. It appears the managements of these companies are keeping their eyes on the ball.
• Financial companies surprised more with revenue than earnings. Banks are making more loans to businesses that believe they need the capital to grow. That has to be good news down the road.

The next table shows the magnitude of these surprises, and it has a surprise of its own:

	Average EPS Surprise	Average Rev Surprise ($M)
Consumer Discretionary	0.08	41.8
Consumer Staples	0.06	38.0
Energy	0.05	406.9
Financials	0.07	149.3
Health Care	0.10	29.7
Industrials	0.07	103.2
Materials	0.20	27.1
Technology	0.06	106.8

The stunner is the materials sector with its average surprise of 20 cents a share—from only half the reporting companies, as the previous table showed. Perhaps the materials companies are riding out the current rough patch of slack global demand by improving productivity. If so, it’s more good news for the future.  

Health care posted the second-highest average earnings surprise, 10 cents a share. And 77% of the reporting companies contributed to it. These companies obviously are figuring out how to maneuver through the turbulent changes in medical care. More change is ahead as ObamaCare rolls out, but this quarter’s performance suggests the Barron’s 400 health-care components are on top of it.

Reported Revenues, Earnings Improve for B400 Companies

By John Prestbo

The second-quarter earnings season is brightening for Barron’s 400 Index companies.   As of Tuesday this week, 355 companies whose stocks are index components have reported results for the quarter ended June 30, or the one coming closest to that period. That’s 48% more than had reported a week earlier, when we last analyzed how things were going, and amounts to 90% of all components.   Both revenue and earnings look better. Here are the highlights:

• A week ago, revenue in this recent quarter was on track to grow 2.7% from a year before. This week the increase nudged up to 2.8% for these companies, not all of which were Barron’s 400 components in 2012. This calculation includes the revenue figures already reported plus estimates for the 40 or so companies that haven’t reported yet.
• Last week it appeared that per-share earnings would ease 0.04% from a year earlier. This week the companies are on track to surpass year-earlier earnings by 1.4% on a per-share basis. Again, this figure adds already-reported earnings and estimates.
• The ratio of positive earnings surprises fell to 2.5 times negative ones from more than triple a week ago. The count now is 249 positive to 102 negative. However, the average deviation for all surprises doubled to two cents a share since last week. The average positive surprise was seven cents a share, while the average negative surprise was 12 cents a share.
• Revenue surprises, which we didn’t examine last week, numbered 194 positive to 159 negative—much closer than for earnings surprises. The average for positive surprises was $103.6 million, while the average for negative surprises was $77.5 million. Overall, the average for all surprises was $22 million higher.

So far, Google Inc. posted the biggest revenue surprise. Its reported revenue of $14.1 billion beat estimates by $2.7 billion. Outerwall Inc., formerly Coinstar, turned in the largest earnings surprise—its $1.91 a share was 92 cents above estimates.
  The improved results are a reminder that smaller samples can lead to off-base generalizations. Or, as Yogi Berra put it, “It ain’t over till it’s over.” We’ll keep watching.