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Previewing the 2022 Q1 Earnings Season

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The ongoing Ukraine crisis adds to the market’s existing worries about inflation and supply-chain challenges that have been recurring themes in recent months. The addition of geopolitical tensions to the mix has direct implications for the inflation outlook through higher prices for energy and other commodities.

We knew all along that earnings growth was expected to decelerate significantly in the current and coming quarters, after remaining very strong in the preceding periods. But the outlook for earnings had started easing even before the recent geopolitical developments. We saw this in the revisions trend, which had been mixed at best.

The expectation currently is for 2022 Q1 earnings to be up +3.7% from the same period last year on +9.6% higher revenues. In other words, current bottom-up estimates reflect compression in margins, which is in line with the aforementioned inflationary trends.

The chart below shows how estimates for 2022 Q1 have evolved in recent months.

Zacks Investment Research
Image Source: Zacks Investment Research

Estimates for the Energy sector have been positive, reflecting the rise in oil prices. Had it not been for the positive revisions to the Energy sector, the overall revisions trend for Q1 would be negative. In fact, Q1 earnings growth for the S&P 500 index would be -1.1% on an ex-Energy basis.

The chart below shows quarterly net margins for Q1 in the context of where margins have been in recent quarters and what is embedded in current estimates for the coming quarters.

Zacks Investment Research
Image Source: Zacks Investment Research

For Q1, margins are expected to be below the year-earlier level for 9 of the 16 Zacks sectors, with strong margin gains for three sectors (Energy, Transportation and Basic Materials).

Zacks Investment Research
Image Source: Zacks Investment Research

As you can see in the table above, the growth picture has shifted materially for the Finance and Technology sectors, the two biggest earnings contributors to the index. Total Finance sector earnings are expected to be down -16.9% from the same period last year on +2.4% higher revenues, while Tech sector earnings are expected to be down -0.7% in Q1 on +7.5% higher revenues.

The chart below shows the quarterly earnings estimate for Q1 in the context of the actual quarterly totals in the preceding 8 quarters and estimates for the following three quarters.

Zacks Investment Research
Image Source: Zacks Investment Research

The chart below presents the earnings and revenue growth picture on a quarterly basis, with expectations for 2022 Q1 contrasted with the actual growth achieved over the preceding four quarters and estimates for the following three.

Zacks Investment Research
Image Source: Zacks Investment Research

The Q1 Earnings Season Scorecard

The Q1 earnings season will really get going when the big banks start reporting their March-quarter results in mid-April. But the early reports have come out already. In fact, the AutoZone (AZO - Free Report) and Costco (COST - Free Report) reports in recent days for their fiscal quarters ending in February qualify as early Q1 reports.

We will have seen such Q1 results from almost two dozen S&P 500 members by the time JPMorgan (JPM - Free Report) comes out with quarterly results on April 13th.

The chart below shows the comparable picture on an annual basis.

Zacks Investment Research
Image Source: Zacks Investment Research

For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Looking Ahead to the 2022 Q1 Earnings Season