55% of S&P 500 Companies Are Citing Negative Impacts From Foreign Exchange and Labor Costs on Q4 Earnings Calls

While the majority of S&P 500 companies will report earnings results for Q4 2022 over the next few weeks, 4% of the companies in the index (20 companies) had reported earnings results for the fourth quarter through January 12. Given current expectations for a decline in earnings for the fourth quarter and concerns about a recession in 2023, have these companies discussed specific factors that had a negative impact on earnings, revenues, or profit margins for the fourth quarter (or are expected to have a negative impact in future quarters) during their earnings calls?

To answer this question, FactSet searched for specific terms related to a number of factors (e.g., “currency,” “labor,” etc.) in the conference-call transcripts of the 20 S&P 500 companies that conducted fourth quarter earnings conference calls through January 12 to see how many companies discussed these factors. FactSet then looked to see if the company cited a negative impact, expressed a negative sentiment (e.g., “volatility,” “uncertainty,” “pressure,” “headwind,” etc.), or discussed underperformance in relation to the factor for either the quarter just reported or in guidance for future quarters. The results for Q4 and a comparison to the same time period in Q3 are shown in the chart below.

Unfavorable foreign exchange rates and higher labor costs have been cited by the highest number companies in the index (through January 12) as a factor that either had a negative impact on earnings, revenues, or profit margins in Q4, or is expected to have a negative impact on earnings, revenues, or profit margins in future quarters. Overall, 11 companies (or 55%) cited a negative impact from each of these factors.

Given concerns in the market about a possible recession, it is interesting to note that the term “recession” was cited on the earnings calls of 10 of these companies (or 50%). However, it should be noted that in many cases the term “recession” was either cited directly by an analyst or was cited in response to a question from an analyst during the call.

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