Earnings reports may be backward looking, but there are still many reasons investors should play close attention to what companies say in them, and why MarketWatch covers them so diligently every quarter.
The Federal Reserve’s interest rate actions have dominated the conversations surrounding the stock market’s performance over the past year. But for investors looking for clues to what the Fed will do this year, look no further than corporate earnings reports, and what company executives say on conference calls with analysts about what they are seeing and expecting in the coming months.
“ ‘It’s the most granular exercise that we have every quarter. We’re getting information from companies about how they are selling their products, selling their services and their commodities. We learn what is happening in the world day to day.’” “It’s not just about what the company reports, but what their customers are saying and what their clients are saying,” LPL’s Krosby said. “That helps us piece together what the macroeconomic outlook is.”
Headhunter ManpowerGroup MAN reported fourth-quarter earnings per share that fell more than forecast as revenue dropped nearly 11%, due to a softening demand environment in both Europe and North America. Based on trends through January, the company expects the “challenging environment” to continue through the first quarter.
And many companies that have only reported year-over-year sales increases because they raised prices enough to mask a decline in volume. Conagra said the drop in volume was primarily due to the “elasticity impact” from higher prices. But the company wasn’t concerned that elasticity would increase yet.
When the fourth quarter ended, the estimated earnings decline was 3.3%. The fact that results have worsened since then is a break from tradition, as over the past 10 years the earnings growth rate has improved by an average of 5.4 percentage points from the end of the quarter to the end of the earnings reporting season, Butters said.Through Feb. 3, 70% of the companies reporting results have beaten Wall Street expectations, but that is less than the five-year average of 77%, Butters said.
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