Perspectives for 2Q23 Corporate Reports

The corporate reporting season will begin in the coming weeks. In this sense, the consensus foresees that S&P 500 companies’ earnings would have experienced an annual contraction of 6.5% during 2Q23 (vs. an expected contraction of 4.7% at the beginning of 2Q23).

This estimate contrasts negatively with the 10-year average earnings growth rate of 8.5% and, if it materializes, could represent the largest annual decline reported since the second quarter of 2020 (-31.6% annually). It could also mark the third consecutive quarter in which earnings are down in its annual variation rate. Seven of the eleven sectors are expected to post earnings growth, led by the consumer discretionary sectors (+25.8% annually); driven by a rebound in the sub industries of retail, hotels, restaurants and automotive components. On the other hand, it is followed by the communication services sector (+12.8% annually) thanks to the performance of wireless telecommunication services, entertainment and interactive media and services. Conversely, the energy sector is expected to register the largest decline in profits (-47.3% annually) of the eleven sectors, due to a lower average oil price (US$74.01 so far in 2Q23 vs. US$108.5 in 2Q22). Likewise, the materials and healthcare sectors reported declines of 30.3% and 16.7%, respectively.

In terms of sales, a marginal decrease of 0.4% annually is looming; where if confirmed, it would mark the first time that the index reports an annual decrease in sales since the third quarter of 2020 (-1.1%). With this mix of factors, the profit margin would stand at 11.4%, which represents a contraction of 80bp versus last year’s 12.2%. Compared to the 1Q23 profit margin, there would be a small contraction of 10bp. 

JP Morgan will give the starting signal on July 14; therefore, investors will be particularly attentive to the evolution of the season and leads for the remaining quarters, given the strong rebound that has been observed in the markets throughout this year.

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