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Canada Earnings Season Preview: Q1 2023

Written by John Butters | Apr 20, 2023

Analysts lowered their earnings estimates more than average for the first quarter for companies in the S&P/TSX Composite. On a per-share basis, estimated earnings for the first quarter decreased by 8.9% from December 31 to March 31. This decline was larger than the 5-year average (-1.6%), the 10-year average (-3.1%), the 15-year average (-4.6%), and the 20-year average (-3.6%) for a quarter. The first quarter also marked the largest decline in the quarterly EPS estimate since Q2 2020 (-36.7%). At the sector level, 10 of the 11 sectors recorded a decline in estimated earnings during the quarter, led by the Energy (-20.9%), Materials (-17.6%), and Consumer Discretionary (-16.2%) sectors.

Because of the net downward revisions to earnings estimates, the estimated (year-over-year) earnings decline for Q1 2023 is larger now relative to the start of the first quarter. As of today, the S&P/TSX Composite is expected to report a (year-over-year) earnings decline of -16.4%, compared to the estimated (year-over-year) earnings decline of -11.7% on March 31 and the estimated (year-over-year) earnings decline of -4.0% on December 31.

If -16.4% is the actual decline for the quarter, it will mark the largest earnings decline reported by the index since Q3 2020. It will also mark the second straight quarter in which the index has reported a year-over-year decline in earnings. Three of the eleven sectors are projected to report year-over-year earnings growth, led by the Industrials sector. On the other hand, seven sectors are predicted to report a year-over-year decline in earnings, led by the Materials and Energy sectors. A growth rate is not being calculated for the Health Care sector due to the loss reported by the sector in Q1 2022.

Looking ahead, analysts expect declines in earnings of -10.2% and -2.9% for Q2 2023 and Q3 2023, respectively. However, analysts expect the index to report earnings growth 7.6% for Q4 2023. For all of CY 2023, analysts are predicting a decline in earnings of -5.3%.

The forward 12-month P/E ratio is 13.6, which is below the 5-year average (14.8) and below the 10-year average (15.2).

The peak weeks of the Q1 2023 earnings season for the S&P/TSX Composite start next week. Over the next four weeks, about 200 companies in the index are expected to report results for the first quarter.

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