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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:
2023 Q2 earnings for the S&P 500 index are expected to decline -9.4% from the same period last year on -0.6% lower revenues, with margin declines for the 6th consecutive quarter driving the earnings drop.
The -9.4% decline in Q2 earnings would follow the -3.5% decline in 2023 Q1 and -5.4% drop in 2022 Q4. In other words, 2023 Q2 is expected to be 3rd consecutive quarter of earnings declines.
Earnings estimates for Q2 have dropped since the quarter got underway, but the magnitude of cuts to earnings estimates is notably below what we saw in other recent comparable periods. The -9.4% earnings drop in Q2 today is down from -7.2% at the start of the period.
Since the start of 2023 Q2, full-year 2023 earnings estimates have only modestly come down. Estimates have increased for 7 of the 16 Zacks sectors, with Construction, Industrials, Autos, Retail, and Tech enjoying favorable estimate revisions. Estimates have come down for the Energy, Consumer Discretionary, Basic Materials, Transportation, Conglomerates, and Aerospace sectors.
Regular readers of our earnings commentary know that we have flagged a notable stabilization in the estimate revisions trend since the start of 2023 Q2, reversing the persistently negative trend that had been in place for almost a year prior.
Earnings estimates in the aggregate for the S&P 500 index have come down only a touch since the start of April, with several sectors starting to see positive estimate revisions. These sectors include Construction, Industrial Products, Autos, Tech, Medical, and Retail.
The favorable shift in the Tech sector’s earnings outlook is particularly significant since the sector brings in almost 26% of all S&P 500 earnings. Some of the major Tech stocks that are at the forefront of the market’s gains this year are also experiencing positive estimate revisions. Take, for example, Meta Platforms (META - Free Report) and Nvidia Corp. (NVDA - Free Report) .
Meta is currently expected to bring in $11.94 per share on $127.08 billion in revenues this year. The $11.94 per share in earnings estimate is up from $10.22 on March 31st and $8.06 on January 31st. A big part of Meta’s improving earnings outlook has resulted from more effective cost controls. But that’s hardly the only reason for rising earnings estimates, as revenue estimates have also been steadily increasing.
The Nvidia example is relatively more straightforward, given the company’s blockbuster quarterly results on May 24th and record guidance upgrade. Nvidia is currently expected to bring in $7.66 per share in earnings this year (fiscal year ends in January) on $42.6 billion in revenues. Nvidia’s $7.66 EPS estimate is up from $4.48 on March 31st.
We are not suggesting that the improving earnings outlook for Meta and Nvidia are representative of the entire Tech sector, but they nevertheless prove the point that the profitability picture for parts of the sector has turned around in recent weeks.
As noted earlier, earnings estimates for the Tech sector have increased since the start of April 2023, reversing the trend that had been in place for the preceding year. You can see this in the chart below, which tracks the one-year evolution of the 2023 ‘EPS’ for the Zacks Tech sector.
Image Source: Zacks Investment Research
Please note that this representation of the Zacks Tech sector is nothing more than a proxy for the sector as a whole. The important point to note here is that the current $3.16 per ‘share’ estimate is up from $3.12 on March 31st.
The Earnings Big Picture
The chart below provides a big-picture view of earnings on a quarterly basis.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on an annual basis.
Image Source: Zacks Investment Research
As we have pointed out all along, aggregate earnings estimates for 2023 peaked in April last year and consistently came down since then. Even accounting for the aforementioned favorable revisions trend in recent weeks, aggregate 2023 earnings estimates have declined by -13.4% since the April 2022 peak and -14.6% on an ex-Energy basis.
Hard to tell at this stage if the revisions trend will remain on its recent positive trajectory or revert back to its original negative trend. But it is nevertheless a market-friendly development.
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Q2 Earnings: An Early Preview
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:
Regular readers of our earnings commentary know that we have flagged a notable stabilization in the estimate revisions trend since the start of 2023 Q2, reversing the persistently negative trend that had been in place for almost a year prior.
Earnings estimates in the aggregate for the S&P 500 index have come down only a touch since the start of April, with several sectors starting to see positive estimate revisions. These sectors include Construction, Industrial Products, Autos, Tech, Medical, and Retail.
The favorable shift in the Tech sector’s earnings outlook is particularly significant since the sector brings in almost 26% of all S&P 500 earnings. Some of the major Tech stocks that are at the forefront of the market’s gains this year are also experiencing positive estimate revisions. Take, for example, Meta Platforms (META - Free Report) and Nvidia Corp. (NVDA - Free Report) .
Meta is currently expected to bring in $11.94 per share on $127.08 billion in revenues this year. The $11.94 per share in earnings estimate is up from $10.22 on March 31st and $8.06 on January 31st. A big part of Meta’s improving earnings outlook has resulted from more effective cost controls. But that’s hardly the only reason for rising earnings estimates, as revenue estimates have also been steadily increasing.
The Nvidia example is relatively more straightforward, given the company’s blockbuster quarterly results on May 24th and record guidance upgrade. Nvidia is currently expected to bring in $7.66 per share in earnings this year (fiscal year ends in January) on $42.6 billion in revenues. Nvidia’s $7.66 EPS estimate is up from $4.48 on March 31st.
We are not suggesting that the improving earnings outlook for Meta and Nvidia are representative of the entire Tech sector, but they nevertheless prove the point that the profitability picture for parts of the sector has turned around in recent weeks.
As noted earlier, earnings estimates for the Tech sector have increased since the start of April 2023, reversing the trend that had been in place for the preceding year. You can see this in the chart below, which tracks the one-year evolution of the 2023 ‘EPS’ for the Zacks Tech sector.
Image Source: Zacks Investment Research
Please note that this representation of the Zacks Tech sector is nothing more than a proxy for the sector as a whole. The important point to note here is that the current $3.16 per ‘share’ estimate is up from $3.12 on March 31st.
The Earnings Big Picture
The chart below provides a big-picture view of earnings on a quarterly basis.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on an annual basis.
Image Source: Zacks Investment Research
As we have pointed out all along, aggregate earnings estimates for 2023 peaked in April last year and consistently came down since then. Even accounting for the aforementioned favorable revisions trend in recent weeks, aggregate 2023 earnings estimates have declined by -13.4% since the April 2022 peak and -14.6% on an ex-Energy basis.
Hard to tell at this stage if the revisions trend will remain on its recent positive trajectory or revert back to its original negative trend. But it is nevertheless a market-friendly development.