Q3 earnings season: the firms beating forecasts

From Lloyds and WPP to Wall Street's McDonald's and Coca-Cola, the earnings season continues to exceed expectations.

The earnings season on both sides of the Atlantic continues to impress after London-listed WPP (LSE:WPP) joined Wall Street's McDonald's (NYSE:MCD), Coca-Cola (NYSE:KO), and Kraft Heinz (NASDAQ:KHC) as the latest to beat estimates.

WPP's shares rose 6% at the top of the FTSE 100 index leaderboard, having forecast revenues growth of between 11.5% and 12% this year compared with City forecasts of 8% to 11%.

Chief executive Mark Read said the “very strong performance” went well beyond just a cyclical recovery as like-for-like growth at the media and advertising business was 6.9% stronger than the same quarter of 2019.

He added: “Clients across all sectors and geographies are making significant investments in marketing, particularly in digital media and e-commerce services.

“We are now above 2019 levels in all of our business lines, and with the actions we have taken over the last three years, we are even better positioned for growth.”

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The UK's earnings season reflects the optimism of chancellor Rishi Sunak after the Office for Budget Responsibility forecast growth of 6.5% this year up from 4% projected previously.

Lloyds (LSE:LLOY), which is seen as a bellwether for the UK economy, has tapped into that by upgrading its own guidance for 2021 and reporting a £2 billion profit in the last three months.

There had been fears at the start of this earnings season that corporate guidance could turn ugly because City and Wall Street valuations had failed to sufficiently take into account the margins hit from supply chain disruption and the spike in energy prices.

But by the middle of this week, a third of S&P 500 companies had reported with 139 beating earnings estimates. That number increased last night after McDonald's said higher menu prices in the US and its customers' loyalty meant it beat Wall Street forecasts on earnings and revenues.

With comparable sales up by over 10% on 2019, chief executive Chris Kempczinski said the performance was “testament to our unparalleled scale and agility”.

Coca-Cola also upgraded annual earnings guidance after sales were boosted by a strong recovery in demand in restaurants, cinemas and outdoor locations, while the earnings and sales of food giant Kraft-Heinz made it another to beat expectations.

General Motors (NYSE:GM) had a mixed session, despite beating third-quarter forecasts and pointing investors to the high-end of its full-year guidance. Shares fell 5% to reflect lower than expected automotive cash flows as a result of GM dealing with the ongoing semiconductor shortage.

In the week that Tesla (NASDAQ:TSLA) became the first car maker to be valued at more than $1 trillion, GM's chief executive Mary Barra highlighted that revenues from electric vehicles are expected to grow from about $10 billion in 2023 to $90 billion by the end of the decade.

This is based on having four US battery cell plants by the middle of the decade, which will double GM's overall capacity and enable faster growth in production. There are also plans to build its first dedicated electric vehicle truck facility.

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The earnings season continues tonight with tech giants Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), while commodities business Glencore (LSE:GLEN) and UK lender NatWest (LSE:NWG) are due to report in London on Friday.

The positive trends seen so far have contributed to the S&P 500 reaching a record and the FTSE 100 index trading at a 20-month high. Inflationary pressures, however, have not gone away and more central banks appear anxious about the threat of persistently higher prices.

The Bank of Canada last night ended its quantitative easing programme and shifted the expected timing of interest rate hikes from the second half to the middle quarters of next year.

Capital Economics also said today it believes there’s now a high chance that the Bank of England will raise interest rates from 0.10% to 0.25% next Thursday. It may then raise rates to 0.50% in February, if not in December.

“But we think investors are wrong to price in interest rates rising to 1.25% by the end of next year,” the consultancy added.