Back to top

Image: Bigstock

A Stable Earnings Picture Despite the Market Selloff

Read MoreHide Full Article

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>>>

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.

This issue was particularly notable for the Finance sector, where most of the major players missed estimates, though beats became more widespread as the Q1 reporting cycle matured.

You can see this in the EPS and revenue beats percentages for the 454 S&P 500 members that have reported Q1 results already.

Zacks Investment Research
Image Source: Zacks Investment Research

Rising costs and logistical bottlenecks have been weighing on margins, with Q1 net margins for the 454 index members that have reported down 58 basis points from the year-earlier period. Q1 net margins are below the year-earlier level for half of the 16 Zacks sectors, including the Technology sector.

For the Big 5 Technology players – Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Amazon (AMZN - Free Report) , Meta (FB - Free Report) and Alphabet (GOOGL - Free Report) – Q1 earnings declined -8.4% on +11.4% higher revenues. This implies 421 basis-point net margin compression for these Tech giants, with the biggest declines at Alphabet and Meta, followed by Amazon.

Looking at Q1 as a whole, total S&P 500 earnings are expected to be up +9.3% on +13.4% 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.