The corporate earnings season generates a flurry of news on headline numbers and analyst estimates. However, a deeper dive into the underlying factors driving earnings surprises can reveal a more nuanced picture.
From companies that defied industry trends to those that delivered jaw-dropping surprises, the earnings season is a roller-coaster of triumphs and challenges. As the Q1 earnings season winds down, Mint captures some interesting trends for you.
A fading growth story?
India Inc faced headwinds in the June quarter as profits took a beating, growing at their slowest pace in five quarters. A perfect storm of factors, including higher costs, softening demand and a challenging high base dampened corporate India’s spirits. But earnings stories are a matter of perspective, and unfold over time. Successive Mint analyses in the past few weeks showed how different companies rewrite earnings scripts and how early-bird companies paint an incomplete picture.
Also read: Mint Primer | Q1 earnings wrap: Green shoots, red lines
Optical illusions
Nearly one in eight companies relied heavily on non-core revenue. This is often not a good sign as it can temporarily boost profitability while masking underlying issues. Several companies also reported inflated profits due to one-time gains such as asset disposals, legal settlements or tax refunds, which may not accurately reflect the underlying financial health or a company’s ability to generate consistent profits.
Report card
However, amid the mixed performance overall, 20 companies exhibited a rising pace of revenue growth in the past five quarters. These steady performers managed to navigate challenging market conditions and demonstrated resilience in their respective sectors. That said, while the overall number of loss-making companies decreased, a concerning trend emerged: a larger number of companies went from profitability in the March quarter to losses in the June quarter.
Also read: As Q1 profit growth retreats to single digits, can India Inc. hold its head above water?
Follow the profits
Growth in profits is closely tied to stock performance. Robust earnings is the fuel that propels stocks higher, while shortfalls can send them plummeting. While other factors such as market sentiment and economic conditions undoubtedly influence stock performance, the underlying earnings in the main determinant of a stock’s long-term trajectory.
Read More: Beyond the noise: Unpacking Q1 earnings surprises