Back to top

Image: Bigstock

Discover Financial, Kimberly Clark, Johnson & Johnson and Synchrony Financial are part of Zacks Earnings Preview

Read MoreHide Full Article

For Immediate Release

Chicago, IL – January 23, 2023 – releases the list of companies likely to issue earnings surprises. This week’s list includes Discover Financial (DFS - Free Report) , Kimberly Clark (KMB - Free Report) , Johnson & Johnson (JNJ - Free Report) and Synchrony Financial (SYF - Free Report) .

Making Sense of Early Q4 Results: Is an Earnings Cliff Coming?

We get into the heart of the Q4 earnings season this week, with more than 250 companies on deck to report quarterly results, including 86 S&P 500 members.

By the end of this week, we will have seen quarterly results from about 28% of all S&P 500 members and will have a very good sense of whether the earnings-cliff narrative has started unfolding or been further pushed out.

This narrative suggests that the combined effects of softening demand resulting from the extraordinary Fed tightening and persistent cost pressures will prompt management teams across many industries to provide downbeat guidance. Related to this fear is the view that current earnings estimates remain elevated and need to get cut significantly to get in-sync with the unfolding economic ground reality.

Regular readers of our earnings commentary know that we don't subscribe to this view. We see the 'earnings-cliff' type of world unfolding only in the backdrop of the U.S. economy heading towards a 'hard landing.'

We see the risk of such a 'hard landing' as increasing if the Fed persists in its tightening policy beyond what the market has already priced in. But a hard-landing for the U.S. economy isn't our base case, which makes us a lot more sanguine in our earnings outlook given how much estimates have come down already.

We find the Q4 results thus far, admittedly a small sample that is weighted towards the Finance sector (11% of S&P 500 members have reported) as largely good-enough, reassuring, and in-line with our overall view of corporate profitability.

We are starting to see some early signs of weakness in the consumer, with the Proctor & Gamble (PG) report indicating some pushback to the company's ability to keep raising prices and the Discover Financial report indicating that households may be starting to have difficulty paying back their bills.

Proctor & Gamble experienced -6% decline in sales volume, the biggest in years, even as the +10% price increase during the quarter helped offset the impact of softer unit sales. The -6% decline in sales volume in 2022 Q4 followed -3% decline in the preceding period and -1% decline in 2022 Q2.

For Q4, Procter & Gamble's earnings dropped by -6.9% from the year-earlier period on -0.9% lower revenues. P&G's numbers likely provide us with read-through for Kimberly Clark, Johnson & Johnson and others that are on deck to report results this week.

Discover Financial handily beat Q4 earnings and revenue estimates, but the card issuer offered disconcerting guidance for the net charge-off (NCO) rate for 2023. Broadly speaking, the charge-off rate is the proportion of the lender's loan portfolio that it expects to be delinquent. Discover's 2022 Q4 charge-off rate of 2.13% was up from 1.37% in the year-earlier period. Discover guided towards NCO rate in the range of 3.5% to 3.9% in 2023. It will be interesting to see if this week's Synchrony Financial report will validate these credit-quality trends.  

2022 Q4 Earnings Season Scorecard

Including results from all the banks, we now have Q4 results from 55 S&P 500 members or 11% of the index's total membership. Total earnings for these 55 index members are down -10.8% from the same period last year on +7.4% higher revenues, with 67.3% beating EPS estimates and an equal proportion beating revenue estimates.

With 86 index members on deck to report Q4 results this week, we will have seen results from 141 index members or 28% of the index's total membership.

The Earnings Big Picture

Estimates for 2023 have been steadily coming down, as we have been flagging for some time now.

Please note that the $1.955 trillion in expected aggregate earnings for the index in 2023 approximate to an index 'EPS' of $220.02, which compares to $216.89 in 2022.

From their peak in mid-April 2022, S&P 500 earnings estimates have been revised down by -10.2% for the index as a whole and by -12.3% on an ex-Energy basis, with much bigger cuts to estimates for the Construction, Consumer Discretionary, Retail, Tech and Aerospace sectors.

For more details about the evolving earnings picture, please check out our weekly Earnings Trends report here >>>> A Good Enough Start to the Q4 Earnings Season 

Why Haven't You Looked at Zacks' Top Stocks?

Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.

See Stocks Free >>

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339 provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit information about the performance numbers displayed in this press release.

Published in