Daily Agenda: Investors Grow Bullish on Earnings Beats

S&P 500 earnings announcements exceed forecasts; Goldman beats estimates; Japan’s Seven-Eleven moves to pacify activists.


Victor J. Blue

The Standard & Poor’s 500 reached a year-to-date high close yesterday as investors continue to find more good than bad in corporate earnings announcements. With more than 40 percent of the component companies of the S&P 500 reporting so far, more than 75 percent have exceeded consensus analyst estimates. With both guidance and analysts’ projections so low prior to the start of the reporting cycle, the key message appears to be that investors see a silver lining if profits beat expectations — even if those expectations have been reduced. A series of key announcements are on deck today, including health care giant Johnson & Johnson, which exceeded analyst forecasts on pharmaceutical sales by posting a profit of $1.68 per share versus consensus estimates of $1.65, as well as tobacco king Philip Morris International, which today guided full-year earnings higher on a slowdown in the U.S. dollar’s rise.

Goldman Sachs profits decline by 60 percent but still beat estimates. Results for the first quarter released today by Goldman Sachs Group included a sharp year-over-year plunge in both revenues and profits as pressures on fixed-income trading weighed heavily on Wall Street. At $2.68 per share, the New York bank beat consensus analyst estimates of $2.48 despite total revenues falling below expectations. The outperformance in earnings margin was the result of aggressive cost cutting. Goldman is the last major Wall Street bank to announce this earnings cycle.

Chinese consumer appetite drives consolidation. Bloomberg today reported that a group of investors headed by China’s sovereign wealth fund has approached Louisville, Kentucky’s Yum! Brands in a bid to acquire that company’s mainland operation, which includes more than 7,000 Pizza Hut and Kentucky Fried Chicken outlets. Other investors reportedly taking part in the proposed buyout, which could exceed $7 billion in total cost, include alternative-asset giant KKR & Co. A group led by Shanghai Pengxin Group announced today that it had agreed to acquire Australia’s S. Kidman & Co. Valued at more than $250 million, the acquisition will provide the Chinese firm with ranch lands amounting to more than 1 percent of Australia’s total land mass as it seeks to capitalize on expanding demand for beef at home.

Japanese Seven-Eleven operator appeases activists. Today Seven & i Holdings Co., the Tokyo-based company that operates Seven-Eleven stores throughout Japan, announced that Ryuichi Isaka, who had been running the popular retail chain in Japan, would be promoted to president of the parent company. The move is a victory for a group of U.S. activist investors led by Third Point CEO Daniel Loeb, who has argued that a shake-up in management at the retailer will boost shareholder value.

German investors turn bullish. The ZEW Center for European Economic Research announced today that there has a been a sharp rise in confidence among German investors with the organization’s headline sentiment index rising to 11.2 for April versus a prior 4.3. Analysts cite signals of recovering demand from China and the European Central Bank’s quantitative-easing program as primary drivers for the upbeat reading.

Roche positive on approval for cancer treatment. Basel, Switzerland-based Roche Holding on Tuesday announced that it is confident that atezolizumab, a new drug the company has developed to assist the immune system fight cancer, will receive regulatory approval in the U.S. within the year. The drug is specifically targeted against bladder cancer, which accounts for roughly 5 percent of all new cancer diagnoses among Americans each year, according to the American Cancer Society.