- Earnings season provides incredible insights into global supply chains.
- Monsanto’s earnings release was by far the most insightful last week in terms of implications for many companies.
- In many ways, there is no need to forecast – the reliability of conclusions (and trades) is a necessary outcome of what Monsanto disclosed.
The earnings season has begun with its regular treasure chest of valuable gems in terms of supply chain trade ideas and insights. Of course, given the abundance of information and analyses combined with the concerted effort on part of the companies and analysts to “manage” investors, it is hard to pick the most promising (read: profitable) insights from the announcements.
While majority of analysts and market participants focus on the ever important earnings per share number, it is arguably the least informative number in a typical announcement. First, most companies “guide” analysts during the quarter with such fervor that there is little information content left in the final number (the well-documented Standardized Unexpected Earnings, for instance, has stopped working for almost a decade). Secondly, since EPS is the line at the bottom of the income statement, most companies have lines above it with sufficient and often hidden “cushions” to even out quarterly earnings. For this reasons, it is often more rewarding to focus on the top line, particularly if the point is to gain insights about other markets.
Revenue surprises in this sense are a good place to begin. Last week most large revenue surprises were on the negative side, which in itself is quite unsettling. In the table below I have added the end markets of each company to see the pattern. Weakness in the oil & gas, infrastructure and materials industries is not surprising, of course.
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