The Q2 earnings season is nearly in the books. As of Aug. 4, 84% of the S&P 500 had reported their results. On a positive note, 79% of the companies delivered actual earnings per share (EPS) above analyst estimates. That’s 200 basis points above the 5-year average and 600 higher than the 10-year.
“This number also marks the highest percentage of S&P 500 companies reporting a positive EPS surprise since Q3 2021 (82%). In aggregate, companies are reporting earnings that are 7.2% above estimates, which is below the 5-year average of 8.4% but above the 10-year average of 6.4%,” FactSet’s John Butters reported.
So, who are the biggest surprises from the 84% of S&P 500 companies already reported in the second quarter earnings season?
According to FactSet, the technology, consumer staples, and healthcare sectors have delivered the most earnings surprises above analyst estimates.
Here are three stocks that delivered positive earnings surprises in Q2 2023, one from each of these sectors.
Uber Technologies (UBER)
If there’s a stock that many investors doubted would ever make a profit, Uber Technologies (NYSE:UBER) would have to be at or near the top of the list.
I know Uber isn’t part of the S&P 500 at the moment, but the latest quarter suggests it will be soon enough. In my mind, that makes it one of the biggest surprises of the second quarter earnings season.
On Aug. 1, Uber reported its first ever quarterly operating profit of $326 million, up more than $1 billion, from an operating loss of $713 million a year ago. Analysts were expecting an adjusted profit of 16 cents per share. It delivered a GAAP EPS of 18 cents. More importantly, its free cash flow was $1.14 billion, nearly 200% higher than in Q2 2022.
“Robust demand, new growth initiatives, and continued cost discipline resulted in an excellent quarter, with trips up 22% and a GAAP operating profit, for the first time in Uber’s history,” said Dara Khosrowshahi, CEO. “These results also translated into strong driver and courier engagement, with 6 million drivers and couriers earning a record $15.1 billion during the quarter.”
A highlight of the quarter was the joint announcement with Waymo. It stated that Waymo Driver would be available on the Uber platform, starting with Phoenix later in 2023 and rolling out from there.
It is light years ahead of Lyft (NASDAQ:LYFT).
Clorox (CLX)
Clorox (NYSE:CLX) reported Q4 2023 results on Aug. 2. On the top line, it earned $1.67 on an adjusted basis, 80% higher than a year earlier. The analyst estimate for the quarter was $1.19. The results included a 560 basis point increase in its gross margin to 42.7%. On the top line, its revenue was $2.02 billion, about 8% higher than the consensus.
“Over the course of the year, we’ve been relentlessly focused on driving top-line growth while rebuilding margins in the midst of a challenging operating environment as we continue to advance our long-term strategy to invest in our advantaged portfolio of superior brands, advance our digital transformation, and streamline our operating model,” stated CEO Linda Rendle in Clorox’s Q2 2023 press release.
Highlights of the fourth quarter included double-digit organic revenue growth from all four of its operating segments, sequential margin expansion, and a 28% increase in cash flow from operations.
While its sales expectations for fiscal 2024 call for limited organic growth, up 2-4%, it expects to generate adjusted earnings of $5.75 at the midpoint of its guidance. That’s partly due to a 150-175 basis point increase in its gross margin over the next 12 months.
Like many companies, Clorox is sacrificing some volume in return for higher profits. Based on the $5.75 a share estimate, earnings should increase by 13% over 2023.
Over the past five years, the index has handily beaten Clorox’s stock. It’s time for the maker of well-known brands, such as Clorox, Pine-Sol, and many others, to deliver for shareholders.
McKesson (MCK)
McKesson (NYSE:MCK) is having a decent year in the markets, up nearly 17%, in line with the index. However, if you’re a long-time shareholder, you’re probably aware it’s trading within $4 of an all-time high.
The drug distributor reported Q1 2024 earnings on Aug. 2 of $7.27 a share, 24.7% higher than a year ago and 23.9% above the consensus estimate of $5.87. On the top line, its revenues in the quarter were $74.5 billion, 11% higher than Q1 2023 and 6.0% higher than the analyst estimate of $70.3 billion.
As a result of its strong first-quarter earnings, the company raised its adjusted earnings per share guidance to $26.95 a share, up 45 cents from its previous guidance. That’s approximately 14.5% growth over 2023.
McKesson has four operating segments. The biggest one is its U.S. Pharmaceutical business, which accounts for approximately 90% of its revenue and 62% of its operating profit. In Q1 2024, its U.S. Pharmaceutical revenues increased by 17.9% year-over-year.
To continue to grow its U.S. Pharmaceutical business, it launched a new service to help independent pharmacists.
“In May, we launched Pinpoint Community Solutions, a new inventory management system powered by our proprietary Supplylogix software that’s designed to help independent pharmacies improve cash flow, increase inventory efficiency, and to maximize their operational performance,” CEO Brian Tyler stated in the Q1 2024 conference call.
Of the 17 analysts covering MCK stock, 13 rate it Overweight or outright Buy, with a median target price of $485, more than 10% higher than its current share price.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
