Every earnings season seems to come with the tagline along the lines of: "the most important earnings season in years." This upcoming reporting season may be one that lives up to the hype given acute concerns over trade wars, China macro, U.S. housing, Fed tightening, wage inflation, brick-and-mortar retail, etc. 

How can investors keep track of the optimism (or lack thereof) of the C-suite across thousands of earnings calls, much less quantify it?

Introducing The Amenity Forecast Index

How does the Amenity Forecast Index stand out? 

We leverage Amenity Analytics’ NLP platform to track and analyze earnings sentiment of only forward-looking commentary from U.S. quarterly earnings calls. This analysis goes far beyond the stated revenue and EPS guidance to capture all significant forward-looking financial commentary: market share, new products, pricing, inflation, margins, growth, Capex, hiring, share repurchase, etc.

We highlight three key takeaways:

1. The Forecast Index is slightly off the October lows, still well below 1H18 levels.
2. Several of the current hot button issues first appeared in June
3. Some optimism is apparent in the early Q4 calls thus far, but from a very narrow sample

1. The Forecast Index is slightly off the October lows, still well below 1H18 levels.

The Amenity Forecast Index is measured on a scale of -100 to +100 on a rolling 30-day basis. As the chart below shows,the Index has firmly been in positive territory throughout 2018. However, the degree of bullishness in management sentiment has waned as the year progressed, most significantly in June.

Have expectations been lowered enough that this earnings season can show an uptick? Or is “incrementally cautious” the new normal? Stay tuned for weekly updates to our Index throughout earnings season.

2. Several current headwinds first appeared in the Summer.

The stock market dip and global macro concerns arrived suddenly in late 2018, but the Amenity Forecast Index first dipped significantly in June. We performed earnings sentiment analysis around that time to determine what was driving the incrementally negative outlook and found themes that would only grow more significant in the following months:

China challenges: trade and macro

Actuant (6/20/18):

• "It was only down 10% in Q3. So it’s a little bit of a headwind. But Q4, we expect China to be down about 30%."

Culp, Inc. (6/14/18):

• "As we look ahead to the new fiscal year, we’re facing a significant challenge with the growth of Chinese-imported mattresses, and its effect on fabric orders from many of our customers."

Ambarella (6/5/18):

• "We continue to monitor the potential risk and associated impact that may result from trade discussion such as Chinese companies shifting to sourcing more from domestic Chinese semiconductor suppliers."

Cost pressures: labor, freight, and material

ABM Industries (6/7/18):

• "However,for the full year, we now expect operating margins in the low 7% range,primarily as a result of projected incremental labor pressures we are seeing due to more remote account locations and lack of employee density for some of our accounts, which inhibit our ability to attract labor at contractual cost."

United Natural Foods (6/6/18):

• "We expect a headwind from inbound freight expense to continue throughout the next couple of quarters"

Big Lots (6/1/18):

• "Having said that, as we move through the balance of the year, we do expect continued pressure around transportation, in particular, and fuel costs, and that’s largely reflected in our forecast."

REV group (6/7/18):

• "This decline is driven by the previously mentioned $19 million full year impact estimated from material costs."

Mall retail woes

Signet Jewelrs (6/6/18):

• "Our same-store sales guidance of negative low to mid-single digits assumes the positive momentum we saw in our Zales banner in the first quarter to continue to be offset by negative sales growth in our Kay and Jared banners."

Vera Bradley (6/6/18):

• "Our revenue guidance assumes Direct segment net sales will be down by high single-digits to a low teen percentage range compared to last year, with comparable sales,including e-commerce, down in the low to mid-teens percentage range."

3. The early read on Q418: pockets of optimism from a narrow sample thus far.

UnitedHealth Group (1/15/19):

• "Our positive forecast for 2019 remains consistent across all lines of business."
• "I don’t want to overplay Medicaid here. We have a short-term issue that will take us a little bit of time to work our way out of."

WNS Limited (1/17/19):

• "The company expects to continue hiring in quarter 4 and to significantly increase seat capacity in support of FY2020 committed project ramps."

CSX (1/16/19):

• "Talking about this year driven by merchandise strength, I expect total revenues to be up low single digits in 2019. This reflects muted overall intermodal growth impacted by the rationalization of intermodal lanes we have talked about."

United Continental (1/16/19):

• "That being said, the government shutdown and other factors have created some uncertainty in our Q1 outlook, and as such, we’ve gotten to a 3-point range in revenue this quarter."
• "So as we look ahead to 2019, we are paying very close attention to the government shutdown, potential trade disruption and other sources of economic instability."

Delta Air Lines (1/15/19):

• "We are optimistic about domestic performance for the March quarter. Leisure and corporate demand remain healthy with strong bookings for the upcoming MLK and Presidents’ Day holidays as well as the spring break period. And the overall outlook for corporate travel is positive."

Comerica (1/16/19):

• "We estimate that this full year benefit of the 2018 rate increases alone will add approximately $130 million to $150 million to net interest income in 2019."
• "We expect inflationary pressures on items such as occupancy, staff insurance and annual merit and marketing."

Sherwin-Williams (1/15/19):

• "We’re going to invest in CapEx,we’re going to pay the dividend. Absent M&A, we’re going to buy our stock back."

Fastenal (1/17/19):

• "Currently,we’re assuming that we continue to grow double digits now. However the cycle plays out, we’ll have a lotto say about that. But we believe that the momentum that we have in our growth drivers is going to continue."

Kinder Morgan (1/16/19):

• "We’re expecting good year-over-year growth in 2019 as well."

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This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.

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