For Immediate Release

Chicago, IL – November 9, 2023 – Zacks Director of Research Sheraz Mian says, "With results from 88% of S&P 500 members already out, we can confidently say that the overall earnings picture remains stable and largely positive."

Earnings Estimates Come Under Pressure

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:

• With more than 88% of the Q3 results already out, earnings growth for the quarter is on track to turn positive despite the significant Energy sector drag. This positive earnings growth in Q3 comes after three back-to-back quarters of declines.
• While Q3 results have been better than expected, there is a notable acceleration in negative estimate revisions over the last few weeks, a revisions trend that contrasts the largely favorable revisions trend of the preceding six months.
• The negative revisions trend is broad-based, with Q4 estimates getting cut for 12 of the 16 Zacks sectors since the quarter began.
• For the Tech sector, we now have Q3 results from 81% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Tech companies are up +15.6% from the same period last year on +2.7% higher revenues, with 87.9% beating EPS estimates and 65.5% beating revenue estimates.

With results from 88% of S&P 500 members already out, we can confidently say that the overall earnings picture remains stable and largely positive. Earnings growth for the S&P 500 index, which was negative for each of the preceding three quarters, is on track to turn positive in Q3, with the growth pace expected to steadily improve in the coming periods.

One major sector whose results really stood out this earnings season has been the Tech sector, with Q3 earnings for the sector on track to increase +20.8% from the same period last year on +4.2% higher revenues. The sector has had a profitability problem since the start of 2022, but it appears on track to resume its traditional growth attributes going forward, with double-digit earnings growth expected in each of the coming three periods.

For the current period (2023 Q4), the expectation is for S&P 500 earnings to increase by +1% from the same period last year on +2.5% higher revenues.

This is a bigger decline in quarterly estimates compared to what we had seen in the comparable periods to either of the preceding two quarters. This is a reversal of the favorable revisions trend that we have been spotlighting in this space since April 2023.

Not only is there a bigger magnitude of cuts to Q4 estimates, but the pressure is also widespread, with estimates for 12 of the 16 Zacks getting cut since the start of October. The biggest cuts to estimates have been for the Autos, Medical, Consumer Discretionary, Transportation, and Basic Materials sectors.

For example, take a look at estimates for Pfizer (PFE Quick QuotePFE - Free Report) and Eli Lilly (LLY Quick QuoteLLY - Free Report) of the Medical sector and General Motors (GM Quick QuoteGM - Free Report) and Tesla (TSLA Quick QuoteTSLA - Free Report) of the Autos sector.

Eli Lilly is currently expected to earn $2.94 per share in 2023 Q4, which has been cut from $3.12 per share a month back and $3.14 per share two months back. Pfizer has suffered a far more severe cut to estimates, with the current -$0.13 loss down from positive earnings of $0.83 per share a month ago.

Q4 earnings estimates for General Motors and Tesla have similarly come down lately.

You can see the pressure on full-year 2024 earnings estimates in the chart below, which shows the aggregate earnings estimates for the S&P 500 index since May mid-May 2024.

As you can see from these quarterly earnings-growth expectations, the long-feared recession doesn’t show up in this near-term earnings outlook.

This big-picture view of corporate profitability doesn’t leave much room for that development either.

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