It’s Been a Bad Quarter to Miss Earnings

(Bloomberg) -- For corporate America, disappointing analysts this earnings season comes at a high cost.

While companies that exceed expectations are being rewarded at a rate in line with historical trends, those that miss sales or profit estimates have been punished with uncommon force.

Among the companies that have released earnings so far, those that missed on income but beat on revenue have declined 4.3 percent in the three days after reporting earnings. That’s almost four times more than the 15-year average, according to Dennis Debusschere, head of portfolio strategy at Evercore ISI. Those that missed on both the top and bottom lines slid 5.2 percent, compared with a multiyear average of a 2.7 percent loss.

Companies that beat on sales and earnings rose 1.9 percent in the three days after reporting the results, according to Evercore ISI, a few points shy of the 2.1 percent average. In other words, those that miss on sales and earnings are going down almost three times as much as those that beat are going up.

Concern over a slowdown in earnings growth was among the factors that pushed U.S. stocks to the brink of a bear market in December. The sell-off, which wiped out $5 trillion of market value from the S&P 500, pushed analysts to spend most of the past month lowering their earnings expectations. They now see a 12 percent increase for the fourth quarter, half the pace of the prior period, down from a 15 percent forecast in November.

The fourth-quarter EPS estimates continued to decline last week according to Bank of America Corp., driven by cuts in energy companies and mixed results from financials. About 10 percent of S&P 500 companies have reported earnings so far.

To contact the reporter on this story: Elena Popina in New York at epopina@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Chris Nagi, Richard Richtmyer

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