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2 Key Themes From the Q1 Earnings Season

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We’ve learned a lot from earnings season so far, primarily that we haven’t faced the ‘earnings apocalypse’ many foretold and warned us of.  

Zacks Director of Research, Sheraz Mian, says “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.”

With earnings season winding down, let’s take a look at two key themes from the 2023 Q1 cycle.

Pricing Power

There have been several big surprises from those in the Consumer Staples sector. We’ve seen various companies in the realm come out and post better-than-expected results, with pricing power helping lead the way.

For example, several companies, including PepsiCo (PEP - Free Report) , Kimberly-Clark (KMB - Free Report) , and Procter & Gamble (PG - Free Report) , all raised guidance following strong quarterly results. Impressively, all three posted a double beat, exceeding both earnings and revenue expectations.

A key theme within the earnings releases was management’s commentary on pricing power, with consumers choosing to swallow higher prices. These companies’ products have an advantageous ability to generate consistent and solid demand in the face of many economic situations.

All three have outperformed the S&P 500 over the last month, with buyers stepping up following the results. Still, as we can see in the chart below, shares of all have started to lose steam over the past week.

Zacks Investment Research
Image Source: Zacks Investment Research

But the real question is, how long will it be until their pricing power runs out? While their success so far has been undeniably impressive, consumers could eventually reach a breaking point.

Big Tech = Big Surprises

Many feared that the big tech heavyweights, such as Amazon (AMZN - Free Report) , Meta Platforms (META - Free Report) , Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) , and Microsoft (MSFT - Free Report) would bring the market down with them, with bears shouting from the rooftops.

However, quite the opposite happened, with mega-cap tech showcasing their earnings power and buoying the market. All five exceeded earnings and revenue expectations, with buyers stepping up in full force post-earnings.

As we can see in the year-to-date chart below, these mega-cap giants have reflected a ‘flight to safety’ approach for investors in 2023, all widely outperforming the S&P 500 after a brutal 2022.

Zacks Investment Research
Image Source: Zacks Investment Research

Regarding their results, total Q1 earnings for the group were down 0.4% year-over-year on 4.3% higher revenues. The growth pace for this group is expected to pick up in the coming quarters, as illustrated in the chart below.

Zacks Investment Research
Image Source: Zacks Investment Research

Can their outperformance continue?

Bottom Line

With earnings season winding down, it’s beneficial to take a few steps back and reflect on a few key themes we’ve seen within the market, as it can better prepare us for the coming cycle.

So far, we’ve witnessed those in the Consumer Staples sector showcase their pricing power, whereas big tech showcased their market-moving abilities.

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