Earnings from S&P 500 companies are coming in much stronger than expected for the third quarter. But some of the beats are nothing short of amazing.
Nine S&P 500 companies, including Clorox, Airbnb and Intel, reported third-quarter profits that topped analysts' expectations by 65% or more, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. This makes them standouts in what's already been a turnaround quarter for S&P 500 profits in many ways. These massive beats highlight where expectations are too pessimistic, where business is actually strong — or both.
"Third quarter 2023 marks the end of the earnings recession," said Jack Ablin of Cresset Capital Management. "The current quarterly earnings reporting season represents the first annual profit gain since last year."
Sizing Up The S&P 500's Third-Quarter Results
Now that more than 80% of the S&P 500 companies have reported, it's easy to see how fear was overdone.
All told, companies reported 3.7% third-quarter profit growth, says John Butters of FactSet. That's a complete upgrade from what analysts feared coming into the quarter. Just a month ago, analysts thought S&P 500 earnings would drop 0.3%. And the dramatic turnaround from a suspected profit contraction to growth is due to some big-time beats.
More than 80% of S&P 500 companies reported making more money in the quarter than analysts forecast. That's dramatically more than the 74% that normally top estimates in the past 10 years on average, Butters says. Additionally, the typical earnings beat hit 7.1%, Butters says, which is higher than the 6.6% average going back the past 10 years.
But some S&P 500 companies did even better than that.
Surprise! We Made Money
Two S&P 500 companies, expected to lose money in the quarter, actually turned a profit. They are Clorox and cosmetics maker Estee Lauder.
Clorox's surprise was dramatic. The company on Nov. 1 reported a quarterly adjusted profit of 49 cents a share. That certainly beat the 21 cents a share loss analysts called for. Analysts were highly negative especially following a cyberattack on the company in August. The company's CEO Linda Rendle, though, said focus on pushing up prices and cutting costs mitigated the profit hit. Shares are still down more than 8% this year.
"We're laser-focused on our immediate priorities of rebuilding retailer inventories as quickly as possible, preserving merchandising activity and improving our distribution to return to the trajectory we were on prior to the cyberattack," she said in an earnings call with investors.
Giant Upside Surprise In S&P 500
Home-renting service Airbnb didn't have such easy comparisons. Analysts thought the company would earn $2.15 a share in the third quarter. That was respectable growth of more than 20% from the same period a year earlier.
But fanned by red-hot demand, Airbnb completely blasted past forecasts. The company wound up making an adjusted $6.63 a share in the quarter when it reported on Nov. 1. That topped expectations by more than 200%. No wonder investors drove shares up more than 38% this year.
Intel, too, has seen its shares jump more than 43% this year — the highest among all the S&P 500 companies that trounced third-quarter profit forecasts. Investors have hoped the computer chipmaking giant could reclaim its former glory. And in the third quarter, it did. The company reported an adjusted profit of 41 cents a share in the third quarter, topping views by more than 80%.
Such huge results highlight how the U.S. economy continues to defy the odds. Some wonder, though, if eventually the wind-down of consumer spending and higher rates will finally sting.
"Domestic demand is strong, but equity investors are beginning to look through today's impressive results toward slower growth in 2024," Ablin said.
Biggest S&P 500 Profit Surprises
In third quarter of 2023
| Company | Ticker | EPS surp. % | YTD stock ch. % | Sector |
|---|---|---|---|---|
| Airbnb | 208.4% | 38.2% | Consumer Discretionary | |
| Paramount Global | 200.0 | -24.7 | Communication Services | |
| DTE Energy | 129.3 | -16.0 | Utilities | |
| Intel | 86.4 | 43.9 | Information Technology | |
| Insulet | 73.2 | -46.0 | Health Care | |
| Live Nation Entertainment | 67.2 | 22.4 | Communication Services | |
| Assurant | 65.6 | 29.2 | Financials | |
| Clorox | 64.5 | -8.1 | Consumer Staples | |
| Allstate | 65.3 | -3.7 | Financials |
