MARKETS SPECTATOR: Reassuring US revenue

Earnings season in the US is exceeding estimates with the top-line results, particularly, providing cause for optimism.

US first quarter earnings are set to take centre stage this week with many of the heavyweight technology companies due to report.

So far, the reporting season has been pretty good with 60.2 per cent of the companies that have already reported beating revenue estimates and 59.4 per cent exceeding expectations on an earnings per share basis.

While the EPS beat rate is basically in line with the two previous quarterly reporting seasons, the percentage of companies beating on a revenue, or top-line, basis is showing a huge improvement, as can been seen in the below chart.

image

Source: Bespoke Investment Group

This is an encouraging sign in my mind as it shows that actual sales and revenues are coming in stronger than expected rather than simply earnings per share.

Earnings per share metrics can be improved through unsustainable cost cutting measures whereas actual top-line growth is a much more reliable and sustainable indicator of health.

It shows the companies are actually bringing in more money.