It was a busy week for investors as stocks responded strongly to the flow of second-quarter earnings. Normally, reporting season goes like this: Guidance is cut so management has a lower hurdle to clear, boosting their company’s share price on positive surprises driven more by debt-funded share buybacks than actual top-line growth.
For years, the S&P 500’s sales growth has lagged earnings per share for this reason. And investors didn’t seem to care.
This time, it’s different. Investors are looking through the earnings manipulation to worry about what the result of tepid sales and rising debt levels will be — especially in the context of a Federal Reserve preparing to raise interest rates for the first time since 2006. The result has been a broad market slump taking the Dow Jones Industrial Average back below its 200-day moving average.
But there have been a number of big earnings winners as well, mainly focused in the technology sector, that have kept the Nasdaq Composite within a hair of its recently set record high.
Here is a look at five earnings winners — as well as five losers — from the week that was.
Earnings Winner: Amazon (AMZN)
Amazon (AMZN) surged as much as 20% on Friday after reporting a huge surprise in profits.
Earnings per share of 19 cents per share (vs. the 14-cent loss analysts were expecting) on a 20% jump in sales over last year even took the company’s market capitalization past Walmart (WMT) for a short while.
Its Prime video membership/free shipping service is enjoying strong demand, but perhaps most importantly, Amazon Web Services is turning into an absolute juggernaut fueling healthier margins.
Earnings Loser: McDonald’s (MCD)
McDonald’s (MCD) is down about 4% from its recent high after reporting another sales decline for the second quarter as the company struggles with a stale menu lacking excitement, as well as intense competitive pressures.
Global comparable-store sales dropped 0.7% on negative guest traffic in all its major regions. Here at home, U.S. sales dropped 2%.
So while both earnings and revenue for Q2 came slightly ahead of expectations, the ongoing slide in traffic dampened spirits.
Earnings Winner: Starbucks (SBUX)
Starbucks (SBUX) surged nearly 5% in early trading on Friday before pulling back to a 2% gain. This after the company reported a bottom-line earnings beat of 42 cents per share on Thursday night to beat the consensus estimate by a penny.
SBUX reaffirmed its fiscal year guidance as global same-store sales rose 7%. Overall revenues rose 18% over last year to $4.9 billion.
Earnings Loser: Caterpillar (CAT)
Caterpillar (CAT) is down 15% from its recent high after — you guessed it — reporting a top-line miss. Revenues fell 13% from last year to $12.3 billion. Caterpillar blamed the drop on lower volume as well as the negative impact of the stronger dollar on the value of foreign earnings.
Poor news looking forward, too: Management warned that the rest of the year will remain challenging, with lower energy prices a major factor.
Earnings Winner: Boeing (BA)
Boeing (BA) shares are hanging above their 50-day moving average in a sustained way for the first time since early April thanks in part to top- and bottom-line beats this week. Revenues rose 11.3% over last year to $24.5 billion, and adjusted earnings of $1.62 per share easily cleared a bar of $1.37.
Forward guidance, while not impressive, still was at least in line with expectations on higher-than-expected costs for its KC-46 tanker program.
Earnings Loser: Verizon (VZ)
Verizon (VZ) shares are down more than 4% from their recent high after the telecom giant reported a mixed result for the second quarter.
Earnings per share came in a little better than expected, but revenues were largely inline with forecasts and net subscriber additions were soft. Worse still, Verizon lowered its fiscal year revenue guidance.
Considering much of Verizon’s success came on a jump in tablet additions, all this adds evidence to the case that the smartphone market is becoming fully saturated.
Earnings Winner: Whirlpool (WHR)
Whirlpool (WHR) jumped 12% off of its lows this week thanks to better-than-expected earnings per share of $2.70, up 3% from last year. Sales jumped 11% to $5.2 billion, and actually were up 25% excluding the drag from currency effects.
WHR’s forward outlook was held stable, giving investors a sense of stabilization in a stock that had been beaten down since peaking in March.
Earnings Loser: IBM (IBM)
IBM (IBM) shares have been pushed hard back below their 200-day moving average after quarterly revenues of $20.8 billion missed the $21 billion consensus estimate on a sizable drop in software revenue ($5.8 billion vs. $6.5 billion in the same period last year).
Big Blue’s top line dropped 13.4% from last year in what was the largest revenue pullback since 2009. It also marked the 13th consecutive quarter of falling revenues.
IBM’s losses this week actually sent shares into the red for the year, plumbing negative territory for the first time since April.
Earnings Winner: Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill (CMG) has gone vertical, up 22% from its lows earlier this month, after reporting a mixed result for the second quarter.
Investors focused on the 14% year-over-year revenue increase, and a 2-cent earnings beat on profits of $4.45 per share also helped smooth things along.
They also chose to overlook comps — same-store sales growth of 4.3% missed a 5.8% bar — after a monster 17.3% performance last year made comparisons difficult.
Earnings Loser: United Technologies (UTX)
Diversified industrial play United Technologies (UTX) was smashed this week, down more than 10% from its recent high and 19% from its February high, after reporting a top-line miss and lowering its fiscal-year guidance on weakness in Europe and China.
Argus analysts lowered their target on UTX stock as the company, in their words, has stumbled in key markets such as elevators and jet engines.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
