Earnings season is beating estimates, which says more about the estimates
Roughly four in five S&P 500 companies have come in ahead of consensus. That is close to the long-run average, and the long-run average is the problem.
With three quarters of the index reported, 79 percent of S&P 500 companies have beaten earnings estimates. That sounds like a strong season. It is very close to the ten-year average of 77 percent, which should make you ask what the estimates are for.
Analysts cut forecasts into the reporting window, companies guide them down further, and the resulting bar is one most firms clear. The beat rate has not fallen below 65 percent in any quarter this decade. A statistic that is almost always high carries almost no information.
The number that does carry information
Revenue. Sales beats are running at 61 percent, several points below the recent average, and revenue is much harder to manage than earnings per share. You can beat on EPS through buybacks, cost control or a tax line. Beating on revenue means you sold more.
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