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ConAgra, Constellation Brands, Lamb Weston, and JPMorgan are part of Zacks Earnings Preview

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For Immediate Release

Chicago, IL – April 4, 2022 – releases the list of companies likely to issue earnings surprises. This week’s list includes ConAgra (CAG - Free Report) , Constellation Brands (STZ - Free Report) , Lamb Weston (LW - Free Report) , and JPMorgan (JPM - Free Report) .

Making Sense of the Earnings Uncertainty

The 2022 Q1 earnings season has gotten underway already, with results from 17 S&P 500 members with fiscal quarters ending in February getting counted as part of the official March-quarter tally. We have another 4 S&P 500 members on deck to report results this week, including ConAgra, Constellation Brands, Lamb Weston, and JPMorgan.

The geopolitical uncertainty in the wake of the Ukraine situation adds to the market's existing worries about inflation and supply-chain challenges that have been recurring themes in recent months. The addition of geopolitical tensions to the mix has direct implications for the inflation outlook through higher prices for energy and other commodities. All of this has a bearing on the earnings outlook.

We knew all along that earnings growth was to decelerate significantly in the current and coming quarters, after remaining very strong in the preceding periods. But the outlook for earnings had started easing even before the recent geopolitical developments. We saw this in the revisions trend, which had been mixed at best.

The expectation currently is for 2022 Q1 estimates to be up +3.5% from the same period last year on +10% higher revenues. In other words, current earnings estimates reflect compression in margins, which is in-line with the aforementioned inflationary trends and the results we have seen from the 17 companies that reported in recent days. 

Negative Estimate Revisions

Revisions to the 2022 Q1 estimates are mixed, with estimates for 10 of the 16 Zacks sectors going down since the start of January, with the Consumer Discretionary, Transportation and Aerospace sectors suffering significant estimate cuts. In fact, Q1 estimates for the Transportation sector are down by more than a third since the start of the quarter and Consumer Discretionary estimates have been cut by almost -30%.

Offsetting the estimate cuts are positive revisions to other sectors, with the Energy sector enjoying the most positive revisions. Other sectors enjoying positive estimate revisions include Medical, Autos, and Construction.

Had it not been for the strong earnings growth expected for the Energy sector (Q1 Energy sector earnings on track to be up +193.5% from the same period last year), Q1 earnings for the remaining 15 sectors would be down -1.6% from the year-earlier period.

With respect to estimate revisions, Q1 estimates would have come down since the start of the period had it not been for the offsetting upward revisions to Energy sector estimates. 

In the aggregate, 2022 Q1 estimates for the S&P 500 index are up +0.1% since the start of the quarter. However, if we look at the revisions trend on an ex-Energy basis, Q1 estimates for the rest of the 15 sectors are down -1.3% since the start of the quarter

For full-year 2022, the expectation is for earnings growth of +7% on +5.9% revenue growth. This would follow the +50.1% earnings growth in 2021.

Full-year 2022 earnings estimates have modestly inched up since the start of the year, with total S&P 500 earnings up +1.3% since the start of January. But there are a lot of cross-currents at the sector level, with estimates going down for 9 of the 16 Zacks sectors and going up for the rest.

In fact, it is the positive revisions to the Energy sector that are offsetting the estimate cuts in the aggregate.

Excluding the positive revisions to the Energy sector, total S&P 500 earnings for 2022 would be down -11.9% since the start of January. The biggest declines have been for the Consumer Discretionary, Transportation and Utilities sectors.

With respect to margins for 2022 Q1, the expectation currently is for a 78 basis points compression, with index level aggregate net margins for the period the lowest since 2020 Q4.

The year-over-year change in net margins is expected to remain negative in the following two quarters as well but are expected to start improving beyond that time frame. It is this margins outlook that is most likely at risk of weakening in the coming days, given the darkening clouds on the horizon.

For Q1, margins are expected to be below the year-earlier level for 9 of the 16 Zacks sectors, with strong margin gains for three sectors (Energy, Transportation and Basic Materials).

As you can see in the table above, the growth picture has shifted materially for the Finance and Technology sectors, the two biggest earnings contributors to the index. Total Finance sector earnings are expected to be down -18.5% from the same period last year on +2.4% higher revenues while Tech sector earnings are expected to be down -0.7% in Q1 on +7.4% higher revenues.

The 2022 Q1 Earnings Season Scorecard

The Q1 earnings season will really get going with the big banks reporting March-quarter results in mid-April, but the early reports have come out already. As mentioned earlier, the recent February-quarter results from the 17 S&P 500 members are part of our March-quarter tally. We will have seen such Q1 results from almost two dozen S&P 500 members by the time JPMorgan comes out with quarterly results on April 13th.

For the 17 index members that have reported Q1 results already, total earnings are up +20.9% from the same period last year on +12.5% higher revenues, with 76.5% beating EPS estimates and 88.2% beating revenue estimates.

For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report: Keeping Track of the Earnings Revisions Trend

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