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Why You Need to Pay Attention to Q3’s Earnings Calls

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October 31, 2018

Even though we’re a professional services company, finance and investing are in our DNA. We’ve made recent strides to up our educational blog posts and relaunched our Money Talks webinars to share our knowledge and help our wider community gain a deeper understanding of some of the industries we work with daily.

The resources we shared above are a great foundation for understanding how big investment firms work (and I’d encourage you to check them out if you’re still fuzzy on your definitions of buy-side firms and how they work), but news and real-life events are where the real analysis (and fun!) begins. Below I examine some of Q3’s most significant earnings calls from last week and how investors’ reactions have impacted the markets.

Investor Concerns and Stock Market Slides

The week of October 22 was a big week for the stock market with both the S&P 500 and the NASDAQ Composite falling by 4%. The week was highlighted by a slew of big third quarter earnings releases, along with earnings calls which provided fourth quarter guidance.

The results: massive amounts of volatility, more questions than answers, and sharp stock price falls. Amazon.com Inc. (AMZN), Caterpillar Inc. (CAT), and 3M Co. (MMM) all fell hard during the week after earnings calls failed to ease investors’ concerns and, in some cases, issued disappointing guidance.  It made this past week one of the most critical weeks for earnings and their calls in many years.

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Caterpillar

Caterpillar’s stock was punished, falling by 13.5% this past week. The shares’ sharp declines came despite the company topping both revenue and earnings forecasts. The earnings call revealed some positives, but still, the stock price did not react well. During the call, management noted it expects to see normal seasonal patterns for the balance of 2018 in China. However, with the current US and China trade war on the rise, many investors are doubtful and have significant concerns about the potential impact it may have on Caterpillar's results.

Amazon

Amazon’s stock fell by 7% during the week and is now nearly 20% off its 2018 highs. The company did deliver weaker than expected revenue for its third quarter while also providing weaker fourth quarter revenue guidance. The earnings call revealed some potential yellow flags that could be taken as cautionary going into 2019. First was a slowdown in unit growth for the online store. Additionally, the company shied away when questioned about the slowing growth rate of Amazon’s most profitable business unit, Amazon Web Services. Finally, rising labor costs came up as a potential headwind for the company in both Q4 as well as 2019.

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3M

The shares of 3M fell by more than 7% for the week after it reported third-quarter revenue and earnings that fell short of expectations. On the call, the company reduced its organic growth and cut its full-year earnings estimates. The company also noted it saw an increase in raw material cost which was hurting its profits. Additionally, the strengthening dollar also played into the reduction in expectations for the company’s outlook.  

Fears Rise

There were plenty of other earnings calls worth exploring as well. However, these three seemed to exemplify most of the major concerns among investors (at least for now), which are slowing global growth, the impact of tariffs and trade, and rising costs. These were the primary reasons for why the stock market fell so hard last week.

A Look at the Week Ahead

The week of October 29 may see just as much volatility with heavyweights such as Apple Inc. (AAPL) and Facebook Inc. (FB) reporting results and hosting calls. Each of these companies will present different views on the global economy and the impact of rising cost.

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Facebook

Since Facebook reported second-quarter results in July, the stock has fallen by more than 33%. It was on the second quarter earnings call that the company noted rising cost would have a negative impact on earnings growth. For the company to turn the corner and start to rise again, it will likely take a strong earnings and revenue beat, followed by positive commentary on the earnings call for the fourth quarter, especially around costs.

Apple

Apple stock has gone the opposite direction of Facebook, rising by almost 14% after the company provided strong third quarter guidance. Once again, on-the-call investors will want to get a feel for how the new iPhones are selling and a feeling for sales during the upcoming quarter.

The recent round of earnings releases and earnings calls have provided investors with a great deal of insight and, in some cases, has only heightened investors’ fears. It means that the calls for this coming week may be just as important, if not more important, and may help to calm some nerves with positive outlooks.

Keep an eye out for our post next week breaking down these calls and others that are sure to make a significant impact on the markets!

About the author

Greg Eiselt

Marketing Director and Cadence Translate. Seattle-born and Beijing-based. Lover of languages, workflows, hip hop, and 火锅.

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