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Breaking Down the First Quarter Earnings Season So Far

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Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

 

  • Excluding the -16.3% decline in Finance sector earnings, Q1 earnings for the rest of the index members that have reported would be up +15.4%.

 

  • On the flip side, the +202.1% increase in Energy sector earnings is boosting the aggregate growth picture. Excluding the Energy sector, Q1 earnings growth drops to +2.6%.

 

  • Looking at Q1 as a whole, total S&P 500 earnings for the period are expected to be up +8.9% from the same period last year on +12.8% higher revenues. Earnings growth for the quarter drops to +3.0% on an ex-Energy basis, but improves to +16.3% on an ex-Finance basis.

While the Q1 earnings season has been fairly good and reassuring in most respects, we have nevertheless been struck by major companies’ inability to beat consensus estimates.

The punishment inflicted on Netflix (NFLX - Free Report) may have been one of a kind, but we have since seen many others getting punished for coming up short, though none to the same extent as the streaming giant. General Electric (GE - Free Report) , HCA Holdings (HCA - Free Report) and a number of others fall in that category.

The aggregate beats percentages reflected a preponderance of negative surprises relative to the recent past earlier in the reporting cycle, but they have since moved into ‘normal’ ranges. You can see this in the EPS and revenue beats percentages for the 370 S&P 500 members that have reported Q1 results already.

Zacks Investment Research
Image Source: Zacks Investment Research

Positive beats were notably hard to come by for the Finance sector, which likely had a bearing on the aggregate trend since the sector is so dominant earlier on in the reporting cycle. But the beats percentages have since improved to within ‘normal’ ranges.

That said, it is fair to infer that analysts, as well as management teams, are struggling with pinning down the impact of inflation and logistical bottlenecks. We have already seen plenty of references to these headwinds from the companies that have reported Q1 results so far.

Looking at Q1 as a whole, total S&P 500 earnings are expected to be up +8.9% on +12.8% higher revenues. This is a significant deceleration from what we have been seeing in the preceding quarters, as you can see in the chart below that provides a big-picture view of earnings on a quarterly basis.

Zacks Investment Research
Image Source: Zacks Investment Research

The chart below shows the overall earnings picture on an annual basis, with the growth momentum expected to continue.

Zacks Investment Research
Image Source: Zacks Investment Research

There is a rising degree of uncertainty about the outlook, being driven by a lack of macroeconomic visibility in a backdrop of Fed monetary policy tightening.

The Ukraine situation is exacerbating pre-existing supply-chain issues, which combined with its impact on oil prices, is weighing on the inflation situation in hard-to-predict ways. The evolving earnings revisions trend will reflect this macro backdrop.


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