First Quarter 2022 Earnings Season Preview


The ongoing Ukraine crisis adds to existing market concerns about inflation and supply chain challenges that have been recurring themes in recent months. Adding geopolitical tensions to the mix has direct implications for the inflation outlook through higher prices for energy and other commodities.

We knew all along that earnings growth was expected to slow significantly in the current quarter and subsequent quarters, after remaining very strong in previous periods. But the earnings outlook had started to soften even before recent geopolitical developments. We saw it in the review trend, which had been mixed at best.

Earnings for the first quarter of 2022 are currently expected to be up +3.7% compared to the same period last year with revenues up +9.6%. In other words, current bottom-up estimates reflect margin compression, which is consistent with the aforementioned inflationary trends.

The graph below shows how the estimates for the first quarter of 2022 have evolved over the past few months.

Image source: Zacks Investment Research

Estimates for the energy sector were positive, reflecting higher oil prices. Without the positive revisions from the energy sector, the overall revision trend for the first quarter would be negative. In fact, first-quarter earnings growth for the S&P 500 would be -1.1% excluding energy.

The chart below shows quarterly net margins for the first quarter in the context of how margins have evolved over the past few quarters and what is factored into current estimates for future quarters.

Zacks Investment Research
Image source: Zacks Investment Research

For the first quarter, margins are expected to be lower than the prior year level for 9 of Zacks 16 businesses, with significant margin gains for three businesses (Energy, Transportation and Basic Materials).

Zacks Investment Research
Image source: Zacks Investment Research

As you can see from the chart above, the growth picture has changed significantly for the financials and technology sectors, the two largest contributors to index earnings. Total finance sector revenue is expected to decline by -16.9% compared to the same period last year with revenue up +2.4%, while technology sector revenue is expected to decline by – 0.7% in the first quarter with revenues up +7.5%.

The chart below shows the quarterly earnings estimate for the first quarter in the context of the actual quarterly totals for the previous 8 quarters and the estimates for the following three quarters.

Zacks Investment Research
Image source: Zacks Investment Research

The chart below shows earnings and revenue growth on a quarterly basis, with expectations for the first quarter of 2022 contrasting with actual growth achieved in the previous four quarters and estimates for the following three.

Zacks Investment Research
Image source: Zacks Investment Research

The Q1 Earnings Season Dashboard

The first quarter earnings season will really begin when the big banks start reporting their March quarter results in mid-April. But the first reports have already come out. In fact, the AutoZone AZO and Costco COST reports for the past few days for their fiscal quarters ending in February are considered first-quarter reports.

We’ll have seen those first-quarter results from nearly two dozen S&P 500 members by the time JPMorgan JPM releases its quarterly results on April 13.and.

The graph below shows the comparable picture on an annual basis.

Zacks Investment Research
Image source: Zacks Investment Research

For a detailed look at the overall earnings picture, including expectations for future periods, please see our weekly earnings trends report. >>>> In anticipation of the first quarter 2022 earnings season

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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