US third-quarter earnings fall far less than Wall Street feared

Column chart of difference between reported EPS and analyst estimates (%) showing US companies report stronger than expected quarterly profits

America’s third-quarter earnings season is proving less downbeat than Wall Street analysts had forecast, with companies broadly reporting a shallower rate of decline in profits and sales than had been expected.

The total profits per share reported by companies listed on the blue-chip S&P 500 index have come in nearly a fifth higher than analysts predicted just several weeks ago, according to FactSet data based on the 63 per cent of companies on the index that have disclosed their figures so far.

Earnings per share are still expected to be down by about 10 per cent compared with the same period in 2019 based on a “blended” figure that combines results from companies that have already reported earnings and estimates for those that have not.

Sales, which unlike per-share profits are not affected by stock buybacks, are also running 2.8 per cent above expectations. The blended sales figure is down by 2 per cent compared with the 2019 level.

Better than expected sales reported by mega-cap stocks such as Facebook and Apple have helped drive the rise, but consumer staples such as Procter & Gamble also fared better than expected over the summer.

“Huge beats continue for a second straight quarter,” said Binky Chadha, chief strategist at Deutsche Bank.

Still, the market’s reaction to such buoyant news has been lacklustre.

“The response to this earnings season in general has been fairly muted and been overshadowed by US election fears and concerns over the lack of [an agreement on US] stimulus,” said Candice Bangsund, vice-president and portfolio manager at Fiera Capital Corporation.

Shares in JPMorgan slipped 1.6 per cent the day it reported upbeat results, and Big Tech stocks including Apple and Amazon dropped despite bumper numbers.

Some longer-term optimism has also emerged: fourth-quarter earnings per share forecasts have increased by 0.6 per cent, on average, since companies started reporting this quarter, according to Deutsche Bank — “a rare upgrade in contrast to the typical cut of 0.5 per cent” during earnings seasons, said Mr Chadha.

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