Trader Talk

Keywords and guidance point to better earnings ahead

Traders work on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters

Remember last quarter, when so many companies beat on the bottom line by a small amount but many firms missed on the revenue line?

That's not happening as much this quarter. In the final quarter of last year, 53 percent of the companies missed on revenues expectations. Now, only 44 percent are missing. That is an improvement, and well above the five-year average of 55 percent missing.

And the company commentary has generally been more positive.

Not that it's ecstatic. But the tone has changed. In January, much of the commentary was filled with terms like "cautious." Now much of the commentary uses words like "stable."

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For example, yesterday Illinois Tool Works' management repeatedly stated that conditions were " firm" and "stable" in most end markets, but were "not accelerating."

True, not a lot are claiming that business is accelerating, but "stable" is better than "cautious" or the dreaded "deterioration."

United Rentals, which specializes in equipment rentals in the construction, energy, utilities and industrial companies, mostly in the United States, did use the word "accelerating" in describing the spring business.

"During the first quarter we saw broad-based, improving demand in many of our core markets, which was most apparent in accelerating volume ... we continue to expect our business to improve both seasonally and cyclically," United said.

The stock is trading down because the company cut guidance due to lower rental rates from the oil and gas business, but surprisingly United described this as "temporary factors."

Other than revenues, several companies raised full year guidance today.

Danaher, which makes tools, testing equipment, and water quality equipment all over the world, beat on the top and bottom line and raised full-year guidance by a nickel. Full-year consensus is now above analyst consensus.

Stanley Black& Decker, which makes tools and security equipment, also beat on the top and bottom line and raised organic growth guidance because the tool business has been strong.

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Paint seller Sherwin Williams, which operates mostly in the U.S., beat on top and bottom line and raised full year guidance.

Johnson Controls, which makes auto interiors and heating, ventilation and air conditioning systems, also beat and raised full-year guidance on stronger businesses and a better tax rate.

Bottom line: It's still early in the earnings season, but the guidance is encouraging. There is a good chance that the four consecutive quarters of earnings decline may end in the second quarter.