MetroPCS, a pay-as-you-go wireless carrier, posted a 76 percent increase in earnings on July 26 as the Richardson, Texas-based company cut sales-promotion costs amid a slowdown in new customers. The result exceeded estimates by the most since 2009, sending the stock up 37 percent.
Western Digital, based in Irvine, California, surged 21 percent after the maker of disk drives and networking products reported profit that surpassed forecasts on July 25. While the result beat projections by 37 percent, in line with the five-year average, the price move was three times as big as the rate since 2007 after releasing results.
Baker Hughes Inc., the world’s third-largest oilfield services provider, rallied 9.2 percent on July 20, when the Houston-based company said improved results from North America beat analysts’ estimates. The same day, the S&P 500 declined 1 percent as Spain said the recession will extend into next year and concern about its regional governments’ finances grew.
Earnings that trailed forecasts exerted more influence too. Advanced Micro Devices Inc., the second-biggest maker of processors for personal computers, slumped 13 percent the day after income from the Sunnyvale, California-based company missed analyst estimates for the first time since 2009. The move was more than twice the average price change.
Shares of WellPoint Inc. slipped 12 percent after the Indianapolis-based health-plan provider reported profit that fell short of projections, while a disappointing quarter for International Game Technology led to a 20 percent drop in the shares.
“When some company breaks the monotony with a good or bad earnings report, you get an exaggerated reaction,” Ben Fischer, the Dallas-based managing director at Allianz Global Investors, which oversees 291 billion euros ($366 billion), said in an Aug. 30 phone interview. “There’s an event that you can get your teeth into, and then you get these huge reactions.”
Stocks moved more after earnings even as analysts did a better job forecasting the results. Profits exceeded estimates by 4.5 percent on average last quarter, compared with 6.2 percent in the prior period, data compiled by Bloomberg show.
The increased focus on earnings is a challenge to investors because analysts are too optimistic about 2012, according to Chris Hyzy of U.S. Trust, which oversees about $325 billion. He predicts S&P 500 profits will reach $100 a share this year, compared with the $103.1 average of more than 10,000 estimates compiled by Bloomberg.
Earnings were unchanged in the March-to-June period, failing to grow for the first time since 2009, while the index’s price-earnings ratio rose 2 percent to 14.3, compared with the five-decade average of 16.4, data compiled by Bloomberg show.