If you see a headline saying that a company beat analysts' expectations when announcing its quarterly results, it may not mean much. Analysts may have set the bar too low, based in part on the company's own forecasts — all part of a routine that can set a “beat rate” of 70% or more each earnings season. Or the company may report a “win” that actually represents a smaller-than-expected net loss.
So what could lead to an impressive set of quarterly results? How about improving profit margins while increasing sales?
Below is a screen to show the 20 companies included in the S&P 500 Index
It posted the largest sales increases this earnings season while also expanding its two key profit margins.
It turns out that four of the companies known as the Seven Wonders pass through the screen.
According to analysts at Deutsche Bank, the combined market capitalization of this group — Microsoft Corp. MSFT,
Apple Inc. AAPL,
NVDA company,
Amazon.com AMZN,
Meta Platforms Inc.META,
Alphabet Google Inc
And Tesla company TSLA
– Larger than the combined stock markets of Japan, France and the United Kingdom.
S&P 500 screen for earnings season winners
About 20% of Standard & Poor's 500 stocks
Companies have fiscal years that don't match the calendar, so there's no neat beginning or end to the quarterly earnings season. As of Monday, 338 companies included in the US benchmark index had announced their results for the fiscal quarters that ended on November 15 or later.
Examining increases in net income (or earnings per share) may not be useful due to one-time events that affect the bottom line. These actions may include write-offs of goodwill, other non-cash accounting adjustments or extraordinary legal expenses.
So we include companies that increased their quarterly sales the most from the previous year while improving their gross profit margins and operating margins.
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A company's gross profit margin is its net sales, minus the cost of goods or services sold, divided by sales. Net sales are sales minus returns and discounts, such as coupons. Cost of goods or services sold includes the actual costs of making the goods or providing the services. Gross margin reflects the pricing power of a company. A narrow gross profit margin may indicate that the company is forced to offer discounts to defend its market share. The combination of increased gross profit margin and increased sales is a good sign.
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A company's net operating margin goes even further, subtracting more overhead and other expenses that are not directly related to the production of goods and services sold. It's basically earnings before interest and taxes divided by sales.
Of the 338 S&P 500 companies examined, data on gross and operating margins were available from FactSet for the most recent quarters and the prior year for 263 companies. Margins are not available to most companies in the financial sector, because the banking and insurance industries use different measures of profitability. For a few companies, FactSet will not be able to provide operating margins until more detailed 10-Q reports are filed with the Securities and Exchange Commission.
Of the remaining 263 companies, these 20 companies increased their quarterly sales the most while also expanding their gross margins and operating margins:
| a company | tape | Increase in quarterly sales over the previous year | gross profit margin | Gross margin, quarter from previous year | Operating margin | Operating margin, previous year quarter |
|
Las Vegas Sands Corporation |
LVS |
161.0% |
38.94% |
17.55% |
37.05% |
8.33% |
|
WYN RESORTS LIMITED |
where |
83.1% |
34.82% |
19.53% |
29.17% |
9.63% |
|
Carnival Company |
CCL |
40.6% |
21.77% |
1.02% |
18.16% |
-1.80% |
|
NextEra Energy Company |
Ne |
34.8% |
40.73% |
22.80% |
56.32% |
37.29% |
|
Trans Digm Group Company |
TDG |
28.1% |
57.35% |
56.48% |
49.02% |
48.96% |
|
Royal Caribbean Group |
kick |
27.9% |
32.66% |
16.72% |
28.61% |
13.54% |
|
Service Now Company |
now |
25.6% |
78.83% |
78.40% |
16.29% |
13.35% |
|
Meta Platforms Inc. Class A |
dead |
24.7% |
81.05% |
78.63% |
51.62% |
40.33% |
|
Arista Networks |
Anita |
20.8% |
65.30% |
60.26% |
42.48% |
38.51% |
|
Day Force Company |
day |
18.9% |
55.29% |
51.77% |
15.86% |
10.24% |
|
Cadence Design Systems, Inc |
CDNS |
18.8% |
89.79% |
89.06% |
55.87% |
27.23% |
|
Intercontinental Exchange Company |
ice |
17.8% |
69.97% |
68.10% |
52.69% |
51.54% |
|
Microsoft Corporation |
MSFT |
17.6% |
68.36% |
66.85% |
53.19% |
45.59% |
|
Clorox Company |
160 |
16.0% |
43.17% |
35.98% |
19.05% |
12.13% |
|
Uber Technologies Inc |
Uber |
15.4% |
29.93% |
28.73% |
8.80% |
2.13% |
|
Chipotle Mexican Grill Company |
CMG |
15.4% |
21.97% |
20.57% |
18.61% |
17.98% |
|
Alphabet Company Class A |
|
14.3% |
56.39% |
53.11% |
31.19% |
28.78% |
|
Schlumberger Limited |
SLB |
14.1% |
18.72% |
14.15% |
20.73% |
15.99% |
|
Amazon.com Inc |
Amzn |
13.9% |
45.54% |
42.60% |
15.99% |
10.84% |
|
Adobe company |
ADBE |
13.2% |
86.60% |
86.30% |
39.26% |
37.47% |
Click on the tickers to learn more about each company, fund or index.
Click here for Tomi Kilgore's step-by-step guide to the wealth of information available for free on the MarketWatch rates page.
The top three companies on the list, in addition to Royal Caribbean Group RCL,
In sixth place, they are all operating in the travel and leisure industries recovering from the COVID-19 pandemic.
The four companies in the Magnificent Seven that made the list above are Meta, Microsoft, Alphabet, and Amazon. Here's why the other three didn't make the list:
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Nvidia's most recent earnings report was for the fiscal quarter that ended on October 29. For the quarter, sales tripled from the previous year, while the company's gross profit margin was 73.95%, a significant improvement from 53.57% the previous year. Nvidia was dominating what was essentially a new market: graphics processing units deployed by data centers to support corporate customers rolling out artificial intelligence technology. Nvidia's quarterly operating margin improved to 59.54% from 16.98% a year earlier. The company is scheduled to announce the results of the fourth quarter of its fiscal year 2024 on February 21.
-
For the quarter ended December 30, Apple's gross profit margin improved to 45.87% from 42.96% a year earlier, while operating margin widened to 36.15% from 33.23%. Its quarterly sales increased by 2.1% over the previous year.
-
Tesla's gross profit margin shrank in the fourth quarter to 17.63% from 23.76% in the previous year, while its operating margin shrank to 13.1% from 20.25% during the same quarter of the previous year. The company's fourth-quarter sales rose 3.5% from a year earlier.
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