Note: The following is an excerpt from this week’s article. Earnings Trends report. You can access the complete report which contains actual historical and detailed estimates for the current and next periods, please click here>>>
Here are the key points:
- The picture that emerged from the first quarter earnings season was one of continued resilience and stability, with companies not only beating estimates but also offering a reasonably good outlook in an uncertain macro environment. This allowed the revision trend to stabilize after remaining negative for almost a year.
- During the morning session of May 24e, we saw the first quarter results of 479 members of the S&P 500, or 95.8% of the members of the index. Total Q1 earnings for these companies were down -3.5% on revenue up +4.6%, with 78.1% beating EPS estimates and 74.9% beating revenue estimates.
- Sectors benefiting from positive earnings growth in Q1 2023 include Transportation (+56.9%), Consumer Discretionary (+31%), Aerospace (+15.7%), Energy (+ 15.5%), finance (+1.4%) and industrial products (+17%).
- For the second quarter of 2023, total S&P 500 earnings are now expected to decline -9% on revenue down -0.6%. This is down from expected declines in profits and revenue of -7.2% and -0.5%, respectively, on March 29.e.
The earnings chart again defied skeptics in the Q1 2023 earnings season, with companies easily beating estimates but also providing sufficiently reassuring guidance for the quarters ahead.
We’re not saying earnings are great, because they’re not. After all, earnings growth is on track to be negative for the second consecutive quarter, with the downward trend in earnings expected to continue in the current period (Q2 2023) and beyond.
That said, the fear of pessimistic guidance and management commentary is still just that, a fear. As a result, we continue to escape the earnings cliff that bear markets have been warning us about for some time.
It may only be a matter of time, with Judgment Day not being postponed until the second half of the year. But for now, at least, we can feel relieved that the earnings picture is quite good.
There are so many examples of flagship companies that show that even though growth has slowed and conditions remain challenging, they are still operating profitably. Consumers continue to spend, although there are signs of weakness at the margin.
As we have highlighted over the past few weeks, this release cycle has led to a stabilization of the earnings estimate revision trend which has been consistently negative for nearly a year. In fact, since the start of the second quarter of 2023 in April, earnings estimates for the full year 2023 as a whole remain essentially unchanged, with estimates for 8 of Zacks 16 sectors having increased slightly over this period. period.
The favorable reversal in the revision trend is particularly notable for the construction, industrials, retail and technology sectors. As we noted last week, you can see it in the trend of reviews for a few top players for these sectors, like KB Home KBH on the construction side, Amazon AMZN for retail, and Microsoft MSFT for the sector. of technology.
For example, Amazon’s current Zacks Consensus EPS of $1.57 for 2023 is up from $1.34 on March 31.st. KB Home is currently expected to bring in $5.27 per share, down from $4.97 per share on March 31st. Likewise, the $9.65 per share Microsoft is expected to report this year today is up from $9.34 per share on March 31.st.
It’s important to note that while earnings estimates for KB Home, Amazon and Microsoft have risen lately, they are still down significantly from what was expected a year ago. For example, Microsoft’s estimate of $9.66 per share today is down from the $10.62 per share expected on May 31.st2022.
Despite this favorable development on the revisions front, it should be borne in mind that the estimates remain significantly lower than they were a year ago. 2023 EPS estimates for KB Home and Amazon are down -51.2% and -33.8% from last year. It is unclear to what extent this recent favorable change in the revision trend will be sustainable or not, but it is a positive development nonetheless.
The big wins Picture
The chart below gives an overview of earnings on a quarterly basis. The growth rate for the first quarter is on a blended basis, where actual reports that have come out are combined with estimates for companies yet to come.
Image source: Zacks Investment Research
The chart below shows the overall profit picture on a yearly basis.
Image source: Zacks Investment Research
As we’ve pointed out throughout, overall revenue estimates for 2023 peaked in April of last year and have been steadily declining since then. Even taking into account the aforementioned trend of positive revisions over the past few weeks, overall earnings estimates for 2023 are down -12.9% from the April 2022 peak and down -14.3% on an off-base basis. energy.
It is difficult to say at this stage whether the trend in revisions will remain on its recent positive trajectory or return to its initial negative trend. But it is nonetheless a market-friendly development.
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