Bottom Line Beat Rates Strong, But Top Line A Different Story

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by: Bespoke Investment Group

In last Friday's Bespoke Report newsletter, we provided our first rundown of this season's earnings results. While only 10-15% of companies have reported so far, it's still enough to give us an early read on how companies performed in Q1. Below are two charts we thought we'd share more broadly with Think B.I.G. readers. In the first chart, we show the percentage of companies that have beaten consensus analyst EPS estimates on a quarterly basis going back to 1999. So far this season, 80% of companies that have reported have beaten EPS estimates. If that reading were to stand - and note that we don't expect it to stand - it would be the strongest earnings beat rate seen in at least 19 years. Needless to say, companies have been beating EPS estimates at a historic clip so far this season.

In the second chart below, we show the percentage of companies that have exceeded consensus top-line revenue estimates on a quarterly basis. In terms of revenues, the beat rate looks much different this season compared to earnings. Only 64.2% of companies have beaten revenue estimates, which is nearly 16 percentage points below the EPS beat rate. If we had to choose, we'd prefer the top-line beat rate to be stronger than the bottom-line beat rate, because sales are harder for companies to manipulate. Last earnings season we actually saw a stronger revenue beat rate than earnings beat rate, but the opposite has been the case so far this season.