Enterprise Bank & Trust

Corporate Profit Season: Where Do We Stand?

July 29, 2016

Enterprise Trust Company

We do not spend too much time in this forum discussing microeconomic issues. However, since we are in the middle of the second quarter earnings release season and the macro-economy is quiet at the moment, we thought it would be a good idea to turn our attention to earnings news. After all, it is profit generation that drives the stock price of any individual company. And, from that perspective, the market overall is driven by the fortunes of the corporations that trade within it. So, what have we seen so far this season and who are the major drivers?

To keep this simple and short, we will focus on domestic companies. Some of the major sectors that investors pay attention to are IT, finance, healthcare and, to a lesser extent, consumer stocks. Starting with tech, this sector was strong across the board for the most part. Facebook was an unequivocal “blowout” earnings release. Google was solid all around (revenue, margins, clicks, EPS) and Amazon was fine but not fantastic. Not everything in tech was perfect though, Juniper’s report was underwhelming, and Corning came in a bit light (pardon the pun). In healthcare, Amgen beat the analysts’ estimates and raised their forward guidance. Bristol Myers Squibb’s release was fine. Other releases in this sector were mixed. Finance continues to be impacted negatively by low interest rates. JP Morgan beat estimates on the basis of strong revenue from fixed income trading, but Bank of America’s profit fell 20% from a year earlier. In the consumer sector; CBS, Nike and Walt Disney all reported strong earnings. These sectors were fairly strong.

Overall, so far this season, earnings releases have been strong enough to justify the current level of the market. There are many more companies releasing earnings next week including Archer Daniels Midland, Pfizer, Emerson Electric, Prudential and Kellogg. So far, so good, and next week should not change things too much.

Disclosures: This piece discusses general market activity, industry or sector trends, or other broad-based economic, market , or political conditions and should not be construed as research or investment advice. The opinions expressed are those of the author and do not necessarily represent the opinions of Enterprise Bank & Trust. Past performance is no guarantee of future performance. No diversification strategy can guarantee against loss.


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