Beat Estimates, Lose Ground: Guidance Now Drives Earnings Season

Dear readers,

Of the S&P 500 companies that have reported so far, 86 percent have topped profit estimates. Yet General Motors, AT&T and Philip Morris are falling or poised to fall anyway. Where yesterday’s concern was the price of borrowed money, the question now is what lies ahead for costs, competition and the quality of earnings. The quarter just ended counts for less than the outlook.

Danaher: A Guidance Raise, and Some Accounting Help

Danaher, the medical and lab technology group, closed the third quarter with adjusted earnings of $2.11 per share, against the $1.92 analysts expected.

It lifted its full-year adjusted EPS guidance to $8.57 to $8.62, from $8.45 to $8.60. Revenue of $6.55 billion landed a hair below the consensus of $6.56 billion.

A closer look is warranted. Reported (GAAP) earnings of $1.71 per share include a one-time tax benefit of $263 million. Organic revenue growth was only 3.0 percent, or 5.5 percent excluding respiratory testing. Much of the gap between reported and organic growth comes from the Masimo acquisition in June, which cost roughly $9.8 billion net. Interest expense, meanwhile, roughly doubled to $135 million.

For the fourth quarter, Danaher is targeting organic growth of about 3 percent, with respiratory testing dragging by around 1.5 percentage points. The stock, down about 2 percent this year, edged higher on Wednesday. That fits the picture: the guidance raise is welcome, but buying Danaher is a bet on a recovery in the core business and on the integration of its acquisitions. The tax effects are no argument for it.

Lam Research Reports Tonight Under Heavy Expectations

Lam Research reports after the US close tonight. Analysts expect revenue of $8.13 billion, up from $5.32 billion a year ago, and earnings of $2.18 per share, up from $1.26. The stock fell 3.2 percent on Tuesday to $263.45. It has lost about 13 percent over the past 30 days but is still up a good 54 percent for the year.

The industry set the bar itself. ASML reported third-quarter net income of €4.96 billion against the €4.1 billion expected. Its CEO described order interest stretching to 2030 and is weighing a bigger capacity expansion in 2028 than previously planned.

TSMC posted its sixth straight record quarter, with net income of NT$763.1 billion, up 68.7 percent. Susquehanna expects the semiconductor sector to deliver quarterly results and guidance slightly above expectations.

The setup is good, but much is already in the price. What matters tonight is less the headline number than what Lam says about orders for 2027. If it offers the same tailwind ASML did, the sector could regain its footing after its recent softness.

SpaceX Hits the Telecom Stocks, Not Just Musk Fans

SpaceX’s numbers overshadow the talk of a merger with Tesla, which Elon Musk has described as not imminent. Third-quarter revenue rose 161 percent to $14.58 billion. Starlink revenue grew 69 percent to $5.25 billion, against expectations of $4.9 billion. The stock rose sharply in premarket trading.

The more interesting consequence is in telecoms. SpaceX reiterated that it will enter the US mobile market in 2028 with hybrid wireless services. AT&T fell about 3.5 percent in premarket trading, even though it beat expectations in the third quarter and raised its 2026 earnings guidance.

Should investors sell immediately? Or is it worth buying Danaher?

The market seems to be pricing in that a new competitor with satellite reach could erode the pricing power of the incumbents. One detail stands out: net additions for Starlink broadband came in below estimates.

General Motors: The Problem Is 2027

After Tuesday’s drop of almost 7 percent to $77.09, the debate has shifted. First it was about the narrowed full-year guidance. Now it is about next year.

CFO Paul Jacobson said the recent surge in raw material, logistics and chip costs could take an additional $1 billion to $1.5 billion off operating profit in 2027. Total cost pressure would then reach roughly $2 billion, about 10 percent of adjusted EBIT. Hot-rolled steel and copper have become 10 to 15 percent more expensive since July.

Morgan Stanley cut its price target from $101 to $95 but stays at Overweight. UBS trimmed its target from $112 to $109 and kept its Buy rating. Analyst sentiment still leans to the buy side.

The new $20 billion buyback and the raised free cash flow guidance for the auto business, now $11.5 billion to $12.5 billion, support the stock. Whether that is enough will be decided by the 2027 outlook, which GM plans to detail only toward year-end.

Philip Morris and Moody’s: Two Roads to Disappointment

Philip Morris beat with adjusted earnings of $2.36 per share against the expected $2.30. It raised its full-year adjusted EPS guidance to $8.29 to $8.44 and lifted the quarterly dividend 8.8 percent to $1.60. The stock still slipped about 2.5 percent in premarket trading.

The reason: organic growth in operating income is likely to land only in the middle or lower half of the targeted 7 to 9 percent range. The ZYN nicotine pouches remain the growth driver, with US segment revenue up 22.7 percent.

The case at Moody’s is simpler. Adjusted earnings of $4.14 per share missed the expected $4.25, and revenue of $2.02 billion fell short of the $2.08 billion estimate.

The stock lost almost 3 percent. The company merely confirmed its full-year guidance of $16.50 to $17.00 in adjusted EPS, and the midpoint sits below consensus.

The Takeaway

Tonight Lam Research, Tesla and Meta report after the US close. Earnings season so far shows a clear pattern: companies that cannot convincingly explain their costs, their competition or the quality of their earnings get punished despite a beat. Investors should read the guidance and the earnings quality before the headline number.

Best regards,
The StocksToday.com Editorial