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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:
The picture emerging from the Q1 earnings season continues to be one of resilience and stability, with companies not only beating estimates but also providing a good-enough outlook in an uncertain macro environment.
Through the morning session of April 26th, we have seen Q1 results from 164 S&P 500 members, or 32.8% of the index’s membership. Total Q1 earnings for these 164 index members are down -1.2% on +6.5% higher revenues, with 81.1% beating EPS estimates and 75% beating revenue estimates.
This is a better performance than we have seen from this group of 164 index members in other recent periods, both in terms of the growth rates as well as the beats percentages.
Earnings aren’t great, but they aren’t bad either, given the uncertain macro backdrop and weak sentiment. Importantly, the tone and substance of management commentary continue to be favorable enough, helping keep negative estimate revisions in check.
Corporate profits continue to defy the skeptics, with an above-average proportion of the companies that have reported results not only beating estimates but also providing reassuring enough guidance for the current coming quarters.
We are not suggesting that earnings are great, because they are not. After all, earnings growth is on track to be negative for the second quarter in a row, with the trend of declining profits expected to continue in the current period.
That said, the fear of all-around downbeat guidance and management commentary still remains just that, a fear. As a result, we continue to elude the earnings cliff that the market bears have been telling us for a while.
Perhaps it’s only a question of time, with the day of reckoning only being deferred to the second half of the year. But, for now, at least, we can feel relieved that the earnings picture is good enough.
There are so many examples of bellwether companies showing that while growth has come down and conditions remain challenging, they are still profitably operating. Consumers are still spending, though there are signs of weakness at the margin.
Strong results from the likes of Pepsi (PEP - Free Report) , Chipotle Mexican Grill (CMG - Free Report) , United Airlines (UAL - Free Report) , and many others show that consumer demand is holding up despite these companies implementing pricing increases.
Then there is Microsoft (MSFT - Free Report) , whose Q1 results and outlook for the current period, particularly in the cloud space, go some ways towards easing fears about enterprise software spending.
Regular readers of this earnings note know that earnings expectations have been steadily coming down since last year in response to a moderating economic outlook as a result of tighter monetary conditions.
The Earnings Big Picture
You can see this in the chart below, which shows the evolution of aggregate earnings estimates for 2023 since the start of 2022.
Image Source: Zacks Investment Research
As noted earlier, the current aggregate earnings total for the index approximates to an index ‘EPS’ of $213.48, down from $242.98 in mid-April, 2022.
The chart below tracks these index ‘EPS’ values since the start of 2022. Please note that these ‘EPS’ values are imputed approximations and have been previously published on the dates listed in the chart below.
Image Source: Zacks Investment Research
The chart below provides a big-picture view of earnings on a quarterly basis. The growth rate for Q1 is on a blended basis, where the actual reports that have come out are combined with estimates for the still-to-come companies.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on an annual basis.
Image Source: Zacks Investment Research
As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down almost -15% since mid-April 2022. Perhaps there will be some more downward adjustments to estimates over the coming weeks as companies report Q1 results and provide guidance for the coming quarters. But it is factually inaccurate to claim that 2023 earnings estimates have not fallen much.
The only scenario in which the almost -15% cut to 2023 earnings estimates may be called inadequate would be if the U.S. economy were headed toward a major economic downturn. The risk of such a ‘hard landing’ for the U.S. economy can’t be ruled out, but it is not our base case.
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2023 Q1 Earnings: Good Enough, but Not Great
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:
Corporate profits continue to defy the skeptics, with an above-average proportion of the companies that have reported results not only beating estimates but also providing reassuring enough guidance for the current coming quarters.
We are not suggesting that earnings are great, because they are not. After all, earnings growth is on track to be negative for the second quarter in a row, with the trend of declining profits expected to continue in the current period.
That said, the fear of all-around downbeat guidance and management commentary still remains just that, a fear. As a result, we continue to elude the earnings cliff that the market bears have been telling us for a while.
Perhaps it’s only a question of time, with the day of reckoning only being deferred to the second half of the year. But, for now, at least, we can feel relieved that the earnings picture is good enough.
There are so many examples of bellwether companies showing that while growth has come down and conditions remain challenging, they are still profitably operating. Consumers are still spending, though there are signs of weakness at the margin.
Strong results from the likes of Pepsi (PEP - Free Report) , Chipotle Mexican Grill (CMG - Free Report) , United Airlines (UAL - Free Report) , and many others show that consumer demand is holding up despite these companies implementing pricing increases.
Then there is Microsoft (MSFT - Free Report) , whose Q1 results and outlook for the current period, particularly in the cloud space, go some ways towards easing fears about enterprise software spending.
Regular readers of this earnings note know that earnings expectations have been steadily coming down since last year in response to a moderating economic outlook as a result of tighter monetary conditions.
The Earnings Big Picture
You can see this in the chart below, which shows the evolution of aggregate earnings estimates for 2023 since the start of 2022.
Image Source: Zacks Investment Research
As noted earlier, the current aggregate earnings total for the index approximates to an index ‘EPS’ of $213.48, down from $242.98 in mid-April, 2022.
The chart below tracks these index ‘EPS’ values since the start of 2022. Please note that these ‘EPS’ values are imputed approximations and have been previously published on the dates listed in the chart below.
Image Source: Zacks Investment Research
The chart below provides a big-picture view of earnings on a quarterly basis. The growth rate for Q1 is on a blended basis, where the actual reports that have come out are combined with estimates for the still-to-come companies.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on an annual basis.
Image Source: Zacks Investment Research
As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down almost -15% since mid-April 2022. Perhaps there will be some more downward adjustments to estimates over the coming weeks as companies report Q1 results and provide guidance for the coming quarters. But it is factually inaccurate to claim that 2023 earnings estimates have not fallen much.
The only scenario in which the almost -15% cut to 2023 earnings estimates may be called inadequate would be if the U.S. economy were headed toward a major economic downturn. The risk of such a ‘hard landing’ for the U.S. economy can’t be ruled out, but it is not our base case.