It's Earnings Report Card Time

 | Apr 25, 2014 | 11:00 AM EDT
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As we move through earnings reporting season, a report card is in order. How are we doing? Who is knocking it out of the park and who is whiffing?

So far about half of the S&P 500 has reported, and the table below highlights the winners and losers. As I evaluate the earnings, I don't look at absolute numbers or even growth rates, but earnings surprises. Surprises are the best tell for where expectations are wrong -- and finding incorrect expectations is the only real way to make money in stocks. (Is Mr. Market going to pay you if a company performs exactly as expected? Seems improbable!)

My analysis is a bit different than your standard earnings surprise analysis, because I use the first quarter earnings per share estimate as of one month ago. This screens out the recent change in estimate, pre-announcements and other manipulations that could make bad earnings suddenly look good.

For example, if a company talks down consensus to their analysts, then beats by a few pennies against the new number, is that really a beat? So I look back farther in time to ascertain what expectations really were coming into earnings season.

This table shows the top and bottom 20 surprises, by percentage, of the more than 200 reports we have seen so far for the S&P 500 names.


S&P 500 2014 QI Earnings Surprises


A few highlights: the best earnings momentum seems to be in certain industrial and consumer segments. Numbers were blown away by Ingersoll-Rand (IR), Sherwin-Williams (SHW), Alcoa (AA) and Masco (MAS) in industrials, for example. Meanwhile, there is both Hasbro (HAS) and Mattel (MAT), PepsiCo (PEP) and Dr. Pepper Snapple (DPS). Each of these has its weak sister though. Consumer names like Procter & Gamble (PG), YUM! Brands (YUM), and Hershey (HSY) all blew it.

There are still a couple hundred names to report next week and in early May, so we will return to look at potential winners and losers on Monday.

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