More S&P 500 Companies Issuing Positive EPS Guidance for Q3 Compared to Past Two Quarters

Despite analysts revising earnings estimates down by a larger margin for Q3 relative to recent quarters, companies have been more positive in their earnings guidance for Q3 relative to the past two quarters.

Overall, 106 S&P 500 companies have issued quarterly EPS guidance for the third quarter. Of these companies, 65 have issued negative EPS guidance and 41 have issued positive EPS guidance. The number of companies issuing positive EPS guidance is above the 5-year average of 39 and above the 10-year average of 32. This number is also above the number of companies issuing positive EPS guidance for Q1 2022 (29) and Q2 2022 (32). On the other hand, the number of companies issuing negative EPS guidance is above the 5-year average of 58 but below the 10-year average of 66. This number is also below the number of companies issuing negative EPS guidance for Q1 2022 (68) and Q2 2022 (72).

Thus, compared to the second quarter, nine more companies have issued have positive EPS guidance (41 vs. 32) for the third quarter and seven fewer companies have issued negative EPS guidance (65 vs. 72) for the quarter. At the sector level, the Real Estate, Industrials, and Consumer Discretionary sectors have recorded both the largest increases in the number of companies issuing positive EPS guidance and the largest decreases in the number of companies issuing negative EPS guidance for Q3 compared to Q2.

In light of the more positive shift in EPS guidance in Q3 compared to Q2, how has the market reacted to positive and negative EPS guidance issued by S&P 500 companies for Q3? The market is rewarding S&P 500 companies issuing positive EPS guidance for Q3 more than average while also punishing S&P 500 companies that issue negative EPS guidance for Q3 more than average.

Companies that have issued positive EPS guidance for Q3 have seen an average price change of +3.1% two days before the guidance was issued through two days after the guidance was issued. This percentage is above the 5-year average of +2.1% for companies issuing positive EPS guidance.

One example of a company that issued positive EPS guidance for Q3 and saw a substantial price increase is Lennar. On June 21, the company stated that it expected to report EPS between $4.55 and $5.45 for third quarter. The mid-point of this guidance range was $5.00, which was above the mean EPS estimate of $4.71 on that date. From June 16 to June 23, the stock price for Lennar increased by 9.6% (to $70.71 from $64.49).

On the other hand, companies that have issued negative EPS guidance for Q3 have seen an average price change of        -2.2% two days before the guidance was issued through two days after the guidance as issued. This percentage is also larger than the 5-year average of -0.8%.

One example of a company that issued negative EPS guidance for Q3 and saw a substantial price decrease is Nucor. On September 14, the company stated that it expected to report EPS between $6.30 and $6.40 for third quarter. The mid-point of this guidance was $6.35, which was below the mean EPS estimate of $7.39 on that date. From September 12 to September 16, the stock price for Nucor decreased by 17.4% (to $117.08 from $141.72).

Given concerns about a declining economy and rising interest rates, the market will likely be even more focused than normal on EPS guidance issued by S&P 500 companies for Q4 2022 and CY 2023 on their earnings calls for Q3 2022.

The term “guidance” (or “preannouncement”) is defined as a projection or estimate for EPS provided by a company in advance of the company reporting actual results. Guidance is classified as negative if the estimate (or mid-point of a range estimates) provided by a company is lower than the mean EPS estimate the day before the guidance was issued. Guidance is classified as positive if the estimate (or mid-point of a range of estimates) provided by the company is higher than the mean EPS estimate the day before the guidance was issued.

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