If you see a headline that a company beat analysts’ expectations when reporting its quarterly results, it may not mean very much. The analysts may have set the bar too low, based in part on the company’s own projections — all part of the routine that can set up a “beat rate” of 70% or more each earnings season. Or a company might report a “beat” that is actually a net loss that was lower than expected.
So what would make for an impressive set of quarterly results? How about improved profit margins combined with an increase in sales?
Below is a screen to show which 20 companies in the S&P 500
SPX
have reported the largest increases in sales this earnings season while also expanding two key profit margins.
It turns out that four of the companies known as the “Magnificent Seven” pass the screen.
According to analysts at Deutsche Bank, the combined market value of this group — Microsoft Corp.
MSFT,
Apple Inc.
AAPL,
Nvidia Corp.
NVDA,
Amazon.com Inc.
AMZN,
Meta Platforms Inc.
META,
Alphabet Inc.
GOOGL,
and Tesla Inc.
TSLA,
— is greater than that of the combined stock markets of Japan, France and the United Kingdom.
S&P 500 screen for earnings-season winners
About 20% of S&P 500
SPX
companies have fiscal years that don’t match the calendar, so there is never a neat beginning or ending to quarterly earnings season. Through Monday, 338 of the companies in the U.S. benchmark index had reported results for fiscal quarters that ended Nov. 15 or later.
Screening for increases in net income (or earnings per share) might not be meaningful because of one-time events that affect the bottom line. These might include write-downs of goodwill, other noncash accounting adjustments or extraordinary legal expenses.
So we are listing the companies that increased quarterly sales the most from a year earlier while also improving their gross profit margins and operating margins.
- A company’s gross margin is its net sales, less the cost of goods or services sold, divided by sales. Net sales are sales minus returns and discounts, such as coupons. The cost of goods or services sold includes the actual costs of making the goods or providing the services. Gross margin reflects a company’s pricing power. A narrowing gross margin might indicate that a company is being forced to offer discounts to defend its market share. A combination of an expanding gross margin and increasing sales is a good sign.
- A company’s net operating margin goes further, subtracting more overhead and other expenses that aren’t directly related to the production of goods and services sold. It is, essentially, earnings before interest and taxes, divided by sales.
Among the 338 companies in the S&P 500 being screened, data for gross and operating margins were available from FactSet for the most recent and year-earlier quarters for 263 companies. The margins aren’t available for most companies in the financial sector, because the banking and insurance industries use different measures of profitability. And for a few companies, FactSet will be unable to provide operating margins until more detailed 10-Q reports are filed with the Securities and Exchange Commission.
Among the remaining 263 companies, these 20 increased quarterly sales the most while also expanding their gross margins and operating margins:
| Company | Ticker | Increase in quarterly sales from a year earlier | Gross margin | Gross margin, year-earlier quarter | Operating margin | Operating margin, year-earlier quarter |
| Las Vegas Sands Corp. |
LVS, |
161.0% | 38.94% | 17.55% | 37.05% | 8.33% |
| Wynn Resorts Ltd. |
WYNN, |
83.1% | 34.82% | 19.53% | 29.17% | 9.63% |
| Carnival Corp. |
CCL, |
40.6% | 21.77% | 1.02% | 18.16% | -1.80% |
| NextEra Energy Inc. |
NEE, |
34.8% | 40.73% | 22.80% | 56.32% | 37.29% |
| TransDigm Group Inc. |
TDG, |
28.1% | 57.35% | 56.48% | 49.02% | 48.96% |
| Royal Caribbean Group |
RCL, |
27.9% | 32.66% | 16.72% | 28.61% | 13.54% |
| ServiceNow Inc. |
NOW, |
25.6% | 78.83% | 78.40% | 16.29% | 13.35% |
| Meta Platforms Inc. Class A |
META, |
24.7% | 81.05% | 78.63% | 51.62% | 40.33% |
| Arista Networks Inc. |
ANET, |
20.8% | 65.30% | 60.26% | 42.48% | 38.51% |
| Dayforce Inc. |
DAY, |
18.9% | 55.29% | 51.77% | 15.86% | 10.24% |
| Cadence Design Systems Inc. |
CDNS, |
18.8% | 89.79% | 89.06% | 55.87% | 27.23% |
| Intercontinental Exchange Inc. |
ICE, |
17.8% | 69.97% | 68.10% | 52.69% | 51.54% |
| Microsoft Corp. |
MSFT, |
17.6% | 68.36% | 66.85% | 53.19% | 45.59% |
| Clorox Co. |
CLX, |
16.0% | 43.17% | 35.98% | 19.05% | 12.13% |
| Uber Technologies Inc. |
UBER, |
15.4% | 29.93% | 28.73% | 8.80% | 2.13% |
| Chipotle Mexican Grill Inc. |
CMG, |
15.4% | 21.97% | 20.57% | 18.61% | 17.98% |
| Alphabet Inc. Class A |
GOOGL, |
14.3% | 56.39% | 53.11% | 31.19% | 28.78% |
| Schlumberger Ltd. |
SLB, |
14.1% | 18.72% | 14.15% | 20.73% | 15.99% |
| Amazon.com Inc. |
AMZN, |
13.9% | 45.54% | 42.60% | 15.99% | 10.84% |
| Adobe Inc. |
ADBE, |
13.2% | 86.60% | 86.30% | 39.26% | 37.47% |
Click on the tickers for more about each company, fund or index.
The top three companies on the list, plus Royal Caribbean Group
RCL,
ranked sixth, all operate in travel and leisure industries that have been recovering from the COVID-19 pandemic.
The four companies in the Magnificent Seven group that made the list above are Meta, Microsoft, Alphabet and Amazon. Here’s why the other three didn’t make the list:
- Nvidia’s most recent earnings report was for its fiscal quarter that ended Oct. 29. For that quarter, sales tripled from a year earlier, while the company’s gross profit margin was 73.95%, improving dramatically from 53.57% a year earlier. Nvidia was dominating what was essentially a new market: graphics processing units being deployed by data centers to support corporate clients rolling out artificial-intelligence technology. Nvidia’s quarterly operating margin improved to 59.54% from 16.98% a year earlier. The company is scheduled to report results for the fourth quarter of its fiscal 2024 on Feb. 21.
- For the quarter that ended Dec. 30, Apple’s gross margin improved to 45.87% from 42.96% a year earlier, while its operating margin widened to 36.15% from 33.23%. Its quarterly sales increased 2.1% from a year earlier.
- Tesla’s fourth-quarter gross margin narrowed to 17.63% from 23.76% a year earlier, while its operating margin narrowed to 13.1% from 20.25% during the year-earlier quarter. The company’s fourth-quarter sales were up 3.5% from a year earlier.
Don’t miss: Want your stock picks to beat index funds? Look at companies with one key metric.
