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Market Not Punishing S&P 500 Companies Reporting Negative EPS Surprises in Q1


By John Butters  |  May 17, 2019

To date, 90% of the companies in the S&P 500 have reported earnings for the first quarter. Of these companies, 65% have reported actual EPS above the mean EPS estimate, which is below the five-year average of 73%. In aggregate, earnings have exceeded estimates by 2.1%, which is also below the five-year average of 4.9%.

Given the weaker performance of companies relative to analyst expectations, how has the market responded to negative EPS surprises reported by S&P 500 companies during the Q1 earnings season?

The market has actually punished negative earnings surprises less than average during this earnings season.

Companies in the S&P 500 that have reported negative earnings surprises for Q1 have seen a decrease in price of 1.1% on average from two days before the company reported actual results through two days after the company reported actual results. Over the past five years, companies in the S&P 500 that have reported negative earnings surprises have witnessed a decrease in price of 2.8% on average during this four-day window.

S&P 500 EPS Surprise vs Avg Price Change

One example of a company that reported a negative EPS surprise in Q1 but did not see a negative stock price reaction is Facebook. On April 29, the company reported actual EPS of $1.71 for Q1, which was below the mean EPS estimate of $1.74. However, from April 27 to May 1, the stock price for Facebook increased by 7.9% (to $202.27 from $187.50).

Why is the market punishing companies that have reported negative earnings surprises less than average? It is likely not due to company guidance or analyst revisions to EPS estimates for the second quarter, as both of these metrics are showing more uncertainty or negative sentiment than normal. In terms of earnings guidance from corporations, a much smaller number of S&P 500 companies are providing EPS guidance for Q2 (35) compared to the five-year average for a quarter (107). In terms of revisions to EPS estimates, industry analysts made the largest cuts to EPS estimates for S&P 500 companies during the first month of a quarter for Q2 2020 (-29.1%) since FactSet began tracking this data in 2002. Please see our May 6 FactSet Insight article for more details on downward revisions to EPS estimates in Q2.

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John Butters

Vice President, Senior Earnings Analyst

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.