The broad markets turned positive on Wednesday morning after positive earnings reports at Dow components International Business Machines (IBM - Free Report) and Procter and Gamble (PG - Free Report) . At mid-morning, IBM was trading up 7% and PG was up 5% after both companies delivered modest beats but also affirmed or raised important 2019 guidance figures.
The focus on future guidance starkly illustrates investors’ cautious optimism about equity prices in 2019. With geopolitical issues still threatening global economic growth, the markets are understandably interested in forecasts from the largest industrial companies for an indication of the relative health of the economy.
IBM posted net earnings of $4.87/share on revenues of $21.8B, beating the Zacks Consensus Estimates of $4.81/share and $21.7B, respectively. Though the results were only modestly better than expectations, IBM shares enjoyed their biggest single day rally in almost a decade on both the diversity of revenues – which was spread across all business units – and the company’s forecast for earnings of more than $13.90/share in 2019 earnings, an improvement over current estimates of $13.86/share.
The affirmation that IBM anticipates earnings growth in 2019 put investors at ease that the technology giant, with a global business that includes old-fashioned hardware and operating systems as well as cloud computing and AI, sees economic opportunity around the world.
Consumer Goods behemoth Procter and Gamble similarly beat estimates by a small amount, but also raised revenue guidance and affirmed earnings guidance which already called for per share earning to grow between 3 and 8% in 2019.
PG had been expected to earn $1.21/share on revenues of $17.19B and surpassed both estimates with sales of $17.44B and net earnings of $1.21/share.
Procter and Gamble has a very stable business and a long history of results for analysts to base estimates upon. There is generally a tight consensus of estimates going into quarterly reports and PG tends to beat the Zacks Consensus Estimate by a small amount. The previous 4 quarters were beats of 4 cents, 2 cents, 4 cents and 3 cents.
That’s solid performance to be sure, but it’s also clear that the likelihood of a big surprise in either direction is quite low.
As we saw with IBM, the rally in PG shares seems mostly to be due to the raised/affirmed estimates for full year 2019.
Sales of Consumer Goods are often seen as a proxy for the health of the “main street” economy and the fact that PG sees continued increases bodes well for the US as a whole.
Less than 20% of S&P 500 companies have reported so far this earnings season and so far, the results have been encouraging. Later this week, big cap stocks Ford (F - Free Report) , Intel (INTC - Free Report) , Bristol Meyers Squib (BMY - Free Report) and Abbvie (ABBV - Free Report) will report.
As was the case with IBM and PG, investors will likely be paying close attention to any changes in guidance or forecasts as much as the posted sales and earnings. As the 2019 rally picks up steam, the confidence of the biggest companies that the growth picture remains intact will go a long way toward soothing nerves that were frayed by the volatile end to 2018.
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