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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:
We are off to a positive start to the Q2 earnings season, with most companies not only beating estimates but also providing reassuring enough guidance for the coming periods.
For the 50 S&P 500 companies that have reported Q2 results, total earnings are up +4.4% from the same period last year on +8.6% higher revenues, with 82% beating EPS estimates and 66% beating revenue estimates.
Given the below-average magnitude of negative revisions to Q2 estimates ahead of the start of the reporting cycle, this above-average EPS beats percentage can be interpreted as a favorable turn in underlying earnings trends.
The 2023 Q2 earnings decline would follow the -3.4% decline in 2023 Q1 and the -5.4% drop in 2022 Q4. The expectation is for 2023 Q3 earnings to be the last period of declines, with growth resuming from Q4 onwards.
For 2023 Q2, S&P 500 earnings are expected to decline -9.3% from the same period last year on -0.5% lower revenues. This would follow the -3.4% decline in index earnings in the preceding period (2023 Q1) and the -5.4% decline in the last quarter of 2022.
In other words, 2023 Q2 is expected to be the third consecutive quarter of declining S&P 500 earnings. The expectation currently is for another earnings decline in Q3 of -1.9%, after which growth turns positive in Q4 and continues in 2024.
Image Source: Zacks Investment Research
As you can see from these quarterly earnings-growth expectations, the long-feared recession doesn’t show up in this near-term earnings outlook. A big-picture view of corporate profitability on a long-term basis doesn’t leave much room for a recession either, as you can see in the chart below.
Image Source: Zacks Investment Research
These growth expectations reflect current bottom-up consensus earnings estimates for the individual S&P 500 companies that, in turn, are based on the estimates from individual sell-side analysts that cover those companies.
Predicting recessions is beyond the core competence of typical equity research analysts. But they do keep a close eye on the evolving business trends for the companies and industries they follow. Analysts maintain elaborate financial models for the companies in their coverage, which allows them to come up with their earnings, revenues, and other estimates.
We at Zacks make it our business to closely monitor how analysts’ earnings estimates evolve over time. In fact, our rating system, the Zacks Rank, is based on earnings estimate revisions.
Regular readers of our earnings commentary know that we have flagged a notable stabilization in the estimate revisions trend since the start of 2023 Q2, reversing the persistently negative trend that had been in place for almost a year prior.
Earnings estimates in the aggregate for the S&P 500 index have come down only a touch since the start of April, with a number of key sectors starting to see modest positive estimate revisions. These sectors include Construction, Industrial Products, Autos, Tech, Medical, and Retail.
Hard to tell at this stage if the revisions trend will remain on its recent positive trajectory or revert back to its original negative trend. But it is nevertheless a market-friendly development.
Sector Focus
All the major banks came out with positive Q2 results and provided generally reassuring commentary about the health of the economy, business, and consumers.
The earnings focus shifts to the mega-cap Tech players that have dominated the market’s strong performance thus far this year. We have Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) on deck to report results after the market’s close on Tuesday, July 25th, with Meta (META - Free Report) and Amazon (AMZN - Free Report) reporting on the 26th and 27th, respectively.
Each of these four companies is part of what we call the ‘Big 7 Tech Players’, with Apple, Tesla, and Nvidia as the remaining club members. Q2 Estimates for Amazon, Microsoft, and Alphabet have been very stable, while the same for Meta have gone up on the back of management’s expense control measures.
Microsoft and Alphabet have been duking it out in the AI ‘gold rush,’ but the more immediate concern from a profitability standpoint will be trends on the cloud spending front. The outlook on the cloud spending front appears to be turning cautiously optimistic, with some signs that the worst may be behind us.
Confirmation of this development, particularly from Amazon, whose AWS is a clear cloud leader, will help solidify the group’s gains thus far, even though a big part of the stock market optimism is centered on AI.
For the ‘Big 7 Tech Players’ as a whole, Q2 earnings are expected to be up +14.1% from the same period last year on +7.9% higher revenues, as the chart below shows.
Image Source: Zacks Investment Research
The chart below shows the group’s earnings picture on an annual basis.
Image Source: Zacks Investment Research
Q2 earnings for the Tech sector as a whole are expected to be down -4.5% from the same period last year on flat revenues. Estimates have inched up since the period got underway, largely reflecting more effective controls.
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Q2 Earnings Season Gets Off to a Positive Start
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:
For 2023 Q2, S&P 500 earnings are expected to decline -9.3% from the same period last year on -0.5% lower revenues. This would follow the -3.4% decline in index earnings in the preceding period (2023 Q1) and the -5.4% decline in the last quarter of 2022.
In other words, 2023 Q2 is expected to be the third consecutive quarter of declining S&P 500 earnings. The expectation currently is for another earnings decline in Q3 of -1.9%, after which growth turns positive in Q4 and continues in 2024.
Image Source: Zacks Investment Research
As you can see from these quarterly earnings-growth expectations, the long-feared recession doesn’t show up in this near-term earnings outlook. A big-picture view of corporate profitability on a long-term basis doesn’t leave much room for a recession either, as you can see in the chart below.
Image Source: Zacks Investment Research
These growth expectations reflect current bottom-up consensus earnings estimates for the individual S&P 500 companies that, in turn, are based on the estimates from individual sell-side analysts that cover those companies.
Predicting recessions is beyond the core competence of typical equity research analysts. But they do keep a close eye on the evolving business trends for the companies and industries they follow. Analysts maintain elaborate financial models for the companies in their coverage, which allows them to come up with their earnings, revenues, and other estimates.
We at Zacks make it our business to closely monitor how analysts’ earnings estimates evolve over time. In fact, our rating system, the Zacks Rank, is based on earnings estimate revisions.
Regular readers of our earnings commentary know that we have flagged a notable stabilization in the estimate revisions trend since the start of 2023 Q2, reversing the persistently negative trend that had been in place for almost a year prior.
Earnings estimates in the aggregate for the S&P 500 index have come down only a touch since the start of April, with a number of key sectors starting to see modest positive estimate revisions. These sectors include Construction, Industrial Products, Autos, Tech, Medical, and Retail.
Hard to tell at this stage if the revisions trend will remain on its recent positive trajectory or revert back to its original negative trend. But it is nevertheless a market-friendly development.
Sector Focus
All the major banks came out with positive Q2 results and provided generally reassuring commentary about the health of the economy, business, and consumers.
The earnings focus shifts to the mega-cap Tech players that have dominated the market’s strong performance thus far this year. We have Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) on deck to report results after the market’s close on Tuesday, July 25th, with Meta (META - Free Report) and Amazon (AMZN - Free Report) reporting on the 26th and 27th, respectively.
Each of these four companies is part of what we call the ‘Big 7 Tech Players’, with Apple, Tesla, and Nvidia as the remaining club members. Q2 Estimates for Amazon, Microsoft, and Alphabet have been very stable, while the same for Meta have gone up on the back of management’s expense control measures.
Microsoft and Alphabet have been duking it out in the AI ‘gold rush,’ but the more immediate concern from a profitability standpoint will be trends on the cloud spending front. The outlook on the cloud spending front appears to be turning cautiously optimistic, with some signs that the worst may be behind us.
Confirmation of this development, particularly from Amazon, whose AWS is a clear cloud leader, will help solidify the group’s gains thus far, even though a big part of the stock market optimism is centered on AI.
For the ‘Big 7 Tech Players’ as a whole, Q2 earnings are expected to be up +14.1% from the same period last year on +7.9% higher revenues, as the chart below shows.
Image Source: Zacks Investment Research
The chart below shows the group’s earnings picture on an annual basis.
Image Source: Zacks Investment Research
Q2 earnings for the Tech sector as a whole are expected to be down -4.5% from the same period last year on flat revenues. Estimates have inched up since the period got underway, largely reflecting more effective controls.