Expectations for the 3Q23 corporate reports
The quarterly earnings season will begin in the coming weeks. Overall, the consensus estimates an annual decline (YoY) of -0.2% for S&P 500 companies’ earnings during the third quarter. If these expectations are confirmed, this could represent the fourth consecutive quarter in which the index reports a decline in earnings. However, this could also mark the smallest YoY decline during this streak.
On a positive note, analysts have so far lowered their 3Q23 earnings estimates by a margin below historical average. In this context, 3Q23 earnings forecasts have only been adjusted down by 0.2% since June 30. This decrease is lower than the 5-year and 10-year historical averages, which reflect negative revisions of 3.6% and 3.4%, respectively.
Eight of the eleven sectors are projected to report YoY earnings growth, led by the Communication Services (+32.1%) and Consumer Discretionary (+21.6%) sectors. In contrast, the Energy (-39.6%) and Materials (-22.0%) sectors are expected to experience the most significant declines, primarily due to lower average oil prices (down approximately 11% compared to 3Q22) and other commodity-related factors. Excluding the drop in the energy sector, earnings for the entire S&P 500 would grow 5.3% YoY.
On the sales side, 2023 YoY growth of 1.5% is anticipated, which is below the 5-year average revenue growth of 7.7% and below the 10-year average revenue growth of 5.0%. Should this figure be confirmed, sales would have posted the eleventh consecutive quarter of growth.
Finally, with this mix of factors, the profit margin (net income / total revenues in %) of the companies would stand at 11.7%, which implies a contraction of 20bp compared to the 3Q22 margin. Encouragingly, this margin level exceeds the 11.4% average of the last 5 years.
With JP Morgan sounding the starting signal on October 13, investors will closely monitor the season’s progress, especially in light of the resilient earnings performance observed thus far despite a tight monetary environment, in which inflation is still in the process of decreasing and consumption is decelerating.
S&P 500: expected earnings growth for 3Q23
Source: FacSet