Consello Research: Will Revenue Overtake EPS as the Key Driver After Rate Cuts?

Analysis of recent S&P 500 Q2 earnings shows market is punishing negative EPS surprises more than average.

NEW YORK, Sept. 9, 2024 /PRNewswire/ -- In the second quarter of 2024, we observed a subtle but notable shift in market reactions to post-earnings reports among S&P 500 companies, with stock movements increasingly driven by positive EPS surprises relative to Street consensus and revised EPS guidance, despite fewer companies achieving smaller revenue beats over consensus.

With Street consensus already modeling an acceleration in revenue growth for the second half of the year, there is a heightened bar for companies to clear, especially as revenue growth surprises have shown a tendency to decelerate following previous rate cut periods. Moreover, the slight uptick in share price reactions post-rate cuts, coupled with deeper revenue misses in certain sectors, suggests that investors could soon recalibrate their expectations.

This recalibration could therefore lead to greater scrutiny of top-line performance as the year progresses, emphasizing that rate cuts alone may not be sufficient to sustain optimism if revenue growth fails to meet elevated expectations.

Q2 Overview:

• 82% of S&P companies have beaten Q2 earnings estimates (vs. ~77% average over the last five years) and 63% have beat on revenue estimates (vs. ~69% average over last five years).
• • At the sector level, Consumer Staples (94%), Health Care (90%) and Technology (89%) have the highest percentage of companies who reported EPS above estimates.
  • On the contrary, Energy (68%), Financials (74%) and Materials (74%) saw the lowest positive earnings surprises this quarter.
  • On average, S&P companies reported 4.5% higher EPS than estimates, which is below the five-year (+8.6%) and ten-year averages (+6.8%).
  • If the tech-laden "Magnificent 7" companies are excluded, the S&P's Q2 sales growth declined by a whopping -8.2% using a weighted average methodology.
• Share Price Reactions:
• • On the day of earnings, companies that beat estimates saw relatively large weighted average share price moves of +2.7%, while those missing estimates experienced a decline of -2.5%, which is higher than in previous quarters.
  • Over five days, stocks of companies that beat estimates increased by 3.5%, whereas those missing estimates declined by -3.2%.

• EPS Year-over-year (YoY): Blended EPS growth increased by 10.1%, which is higher than both five- and ten-year averages (9.4% and 8.4%, respectively).
• EPS Quarter-over-quarter (QoQ): Blended EPS increase is 0.9% (vs. Q1'24: -7.8%). The blended QoQ revenue decline is -10.5% (vs. Q1'24: -4.5%).
• Revenue Year-over-year (YoY): revenues increased by 3.4%, which is below both the five- and ten-year averages (6.7% and 5.1%, respectively).
• Guidance: At this point in the earnings season, the total number of companies providing quarterly guidance (currently 24% of the S&P) is below prior quarters (28-30%), while annual guidance (currently 66% of the S&P) is more in line with the five-year average (~69%).
  • Q3'24 EPS Guidance: 13 S&P 500 companies have issued negative EPS guidance for Q3'24, while 81 companies have issued positive EPS guidance.
    • The percentage of those issuing negative EPS guidance for Q3'24 is 15% (10 out of 91), which is well below both the five-year and ten-year average of 59% and 63%, respectively.

• • Q3'24 Revenue Guidance: 19 S&P 500 companies have issued negative revenue guidance for Q3'24, while 58 companies have issued positive revenue guidance.
  • Full Year EPS Guidance: Of the 272 companies providing EPS FY'24 guidance, 112 raised their yearly guidance higher in Q2 (led by the Health Care and Industrials sectors with 25 companies each)
    • 40 companies lowered their EPS FY'24 guidance (Health Care also leads on this front with 11 EPS reductions, largely related to delays in timing for China stimulus that has affected MedTech and equipment manufacturers' orders throughout the first half of the year)
  • Full Year Revenue Guidance: 178 companies provided higher YoY revenue guides and 39 revised revenue guides down.

The full report is available at: https://consello.com/reports/sp-q2-24-earnings-analysis/

About Consello
Consello is an Advisory and Investing Platform

Our six distinct advisory practices provide the complete strategic counsel today's leaders need to grow and transform their organizations. Our advisory expertise spans M&A; Growth; Marketing; Investor Engagement; Technology; and Sports, Entertainment and Leadership Development. Dedicated teams operate in each practice, led by a leadership group with deep operational experience across industries, business growth stages and market cycles and with an expansive set of global corporate relationships.

Our investment business, Consello Capital, identifies high-potential mid-market companies and invests capital and expertise to transform their growth.

Media Inquiries:
[email protected]

SOURCE Consello