By Corrie Driebusch
Second-quarter earnings are shaping up to be a challenge, but the stock trajectories of some companies that have already reported show that investors are forgiving.
A handful of companies that reported disappointing earnings in June are now in a surprising place -- their shares are near or above their levels prior to reporting results. Shares of Conagra Brands Inc., General Mills Inc. and Broadcom Inc. all tumbled as a result of lowered guidance, squeezed profits or struggling sales. They've since bounced back, suggesting to some analysts that the market may be understanding of the global growth and trade issues plaguing many U.S. companies.
"Some believe the 'earnings apocalypse' is upon us, with negative [earnings per share] revisions on the rise. However, the initial reactions...suggest this season is shaping up to be a time of forgiveness," wrote Wells Fargo Securities senior analyst Christopher Harvey in a note on Monday.
Shares of food makers Conagra and General Mills both fell in late June. Conagra's stock dropped 12% to $25.43 on June 27, one of the worst performers in the S&P 500 that day, as its results were hurt by expenses for steel for cans, as well as competitive pressures. General Mills' stock declined 4.5% to $51.31 on June 26 after the Minneapolis-based company reported a decline in its snacks business and flat sales of cereal and yogurt.
Broadcom in mid-June also struggled after it blamed trade tensions between the U.S. and China for slowing sales in its wireless business and weaker demand. Its stock fell 5.6% to $265.93 on June 14, after reporting disappointing earnings the prior afternoon.
Since then, Broadcom's stock is back above $290 a share, up an additional 1.7% on Monday. Meanwhile, Conagra's stock has clawed back much of its earnings-day decline, rising roughly 9% from its June 27 close. General Mills is trading within 20 cents of its closing price the day before it reported earnings in late June.
According to Wells Fargo, this bounceback toward pre-earnings release prices is good news, and suggests investors are prepared "to look through bad news."
Write to Corrie Driebusch at email@example.com