Earnings-season winners: 20 companies that have grown sales while improving profit margins

By Philip van Doorn

These earnings-season winners not only increase sales, they show pricing power for their products and services

Earnings season is a time when investors like to see a "beat and raise" pattern. That is, companies report sales and earnings that surprise the market by coming in ahead of analysts' estimates. Then the analysts raise their estimates for upcoming quarters, and the pattern supports rising stock prices over time.

Then again, it is customary for a high percentage of companies to beat the estimates, so the surprises themselves may not be so meaningful. What might be more useful to investors is to see which companies are improving their profit margins while also increasing sales.

One thing that complicates a top-down look at earnings results for companies in the S&P 500 SPX is that about 20% of them have fiscal years or even fiscal quarters that don't match the calendar. This means that earnings season never really ends. Still, through Monday, 398 of the S&P 500 had reported results for fiscal quarters that ended Aug. 15 or later, according to FactSet.

Of these 398, 68% reported quarterly revenue that had increased from the year-earlier quarter.

Screening the S&P 500 for solid quarterly results

We screened the 398 companies in the S&P 500 for the following:

Quarterly sales that were up from the year-earlier quarter.Improved gross profit 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 items or providing the services. It is a useful measurement of pricing power, and a combination of an expanding gross margin and increasing sales is a good sign.Improved operating margins. A company's net operating margins 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.

Profit margins vary widely by industry. They are most useful when looking at their movement for individual companies, or when comparing similar companies.

In the screen, we didn't look at earnings per share, because so many one-time factors can affect profit numbers for any company in any quarter and can even distort bottom-line results for a full year.

Among the 398 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 339 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.

Before looking at results for the full screen, you might want to see a comparison of margins for the "Magnificent Seven" stocks, which have contributed most of this year's 15% total return for the S&P 500. All hasn't been rosy, with Joseph Adinolfi reporting late in October that the seven companies -- Microsoft Corp. (MSFT), Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Nvidia Corp. (NVDA), Alphabet Inc. (GOOGL) (GOOG), Meta Platforms Inc. (META) and Tesla Inc. (TSLA) -- had lost $1.24 trillion in market value as a group since July 31.

Nvidia will announce results for its fiscal quarter that ended Oct. 30 on Nov. 21, so that company isn't included in this screen. But here are revenue-growth numbers and comparisons of quarterly margins for the other six members of the Magnificent Seven club. All are for fiscal quarters that ended Sept. 30:

   Company                       Ticker   Change in quarterly sales from year earlier  Gross margin  Gross margin, year-earlier quarter  Operating margin  Operating margin, year-earlier quarter 
   Microsoft Corp.                MSFT                                          12.8%        71.16%                              69.17%            54.53%                                  48.50% 
   Apple Inc.                     AAPL                                          -0.7%        45.17%                              42.26%            33.10%                                  30.79% 
   Amazon.com Inc.                AMZN                                          12.6%        47.57%                              44.71%            16.47%                                  10.14% 
   Alphabet Inc. Class A         GOOGL                                          12.0%        56.70%                              54.48%            32.90%                                  30.01% 
   Meta Platforms Inc. Class A    META                                          23.2%        81.85%                              79.38%            49.85%                                  28.29% 
   Tesla Inc.                     TSLA                                           8.8%        17.89%                              25.09%            12.84%                                  21.65% 
                                                                                                                                                                                  Source: FactSet 

Apple was the only company among these six that showed a decline in revenue. It was a mixed quarter for the iPhone maker, with an increase in earnings. Apple's gross and operating margins improved, as they did for all six companies except for Tesla, whose numbers reflected price reductions for its electric vehicles.

So the margin picture for the Magnificent Seven has mostly been good, and investors can expect improvement for Nvidia as well when the company reports.

Now let's look at results for the full screen. Here are the 20 companies among the 339 we screened in the S&P 500 showing the largest increases in sales while also improving gross and operating margins from a year earlier:

   Company                                     Ticker   Change in quarterly sales from year earlier  Gross margin  Gross margin, year-earlier quarter  Operating margin  Operating margin, year-earlier quarter 
   Las Vegas Sands Corp.                        LVS                                          178.1%        39.21%                              16.72%            36.06%                                   8.86% 
   Carnival Corp.                               CCL                                           59.2%        34.10%                               8.01%            32.93%                                   7.80% 
   Norwegian Cruise Line Holdings Ltd.          NCLH                                          57.0%        33.46%                               9.78%            28.70%                                  -1.05% 
   Lamb Weston Holdings Inc.                     LW                                           47.9%        29.99%                              24.28%            24.48%                                  18.27% 
   Royal Caribbean Group                        RCL                                           39.0%        39.56%                              21.32%            38.80%                                  20.87% 
   Eli Lilly & Co.                              LLY                                           36.8%        80.42%                              77.25%            40.39%                                  33.25% 
   Arista Networks Inc.                         ANET                                          28.3%        62.43%                              60.33%            41.05%                                  37.32% 
   First Solar Inc.                             FSLR                                          27.4%        46.84%                               3.36%            45.51%                                   2.07% 
   Insulet Corp.                                PODD                                          27.0%        68.36%                              54.69%            16.99%                                   4.49% 
   DexCom Inc.                                  DXCM                                          26.7%        63.75%                              59.12%            26.02%                                  24.26% 
   ServiceNow Inc.                              NOW                                           25.0%        78.32%                              78.15%            15.30%                                   9.67% 
   Meta Platforms Inc. Class A                  META                                          23.2%        81.85%                              79.38%            49.85%                                  28.29% 
   Paccar Inc.                                  PCAR                                          23.2%        20.52%                              15.85%            19.85%                                  15.20% 
   Westinghouse Air Brake Technologies Corp.    WAB                                           22.5%        28.67%                              27.87%            19.92%                                  18.69% 
   General Electric Co.                          GE                                           20.0%        25.96%                              20.76%            11.97%                                   4.17% 
   Ceridian HCM Holding Inc.                    CDAY                                          19.6%        55.36%                              50.22%            12.82%                                   7.95% 
   Airbnb Inc. Class A                          ABNB                                          17.8%        77.19%                              76.04%            44.36%                                  42.17% 
   Mondelez International Inc. Class A          MDLZ                                          16.3%        37.31%                              33.76%            18.81%                                  17.35% 

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11-07-23 1002ET

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