Canada Earnings Season Preview: Q3 2022

Analysts lowered their earnings estimates more than average for the third quarter for companies in the S&P/TSX Composite. On a per-share basis, estimated earnings for the third quarter decreased by 6.0% from June 30 to September 30. This decline was larger than the 5-year average (-0.9%), the 10-year average (-3.1%), the 15-year average (-4.5%), and the 20-year average (-3.6%) for a quarter.

The third quarter also marked the first decline in the quarterly EPS estimate since Q2 2020 (-36.7%). At the sector level, the Health Care and Materials sectors witnessed the largest declines in earnings estimates, while the Information Technology sector saw the largest increase in earnings estimates.

Because of the net downward revisions to earnings estimates, the estimated (year-over-year) earnings growth rate for Q3 2022 is lower now relative to the start of the third quarter. As of today, the S&P/TSX Composite is expected to report (year-over-year) earnings growth of 14.8%, compared to the estimated (year-over-year) earnings growth rate of 20.4% on September 30 and the estimated (year-over-year) earnings growth rate of 31.6% on June 30.

If 14.8% is the actual growth rate for the quarter, it will mark the eight consecutive quarter of double-digit earnings growth reported by the index. Five of the eleven sectors are projected to report year-over-year earnings growth, led by the Utilities, Energy, and Consumer Staples sectors. On the other hand, six sectors are predicted to report a year-over-year decline in earnings, led by the Health Care sector.

Looking ahead, analysts expect earnings growth of 12.1% for Q4 2022, and 17.5% for CY 2022. For Q1 2023 and Q2 2023, analysts are projecting earnings growth of 2.7% and 3.6%. For CY 2023, analysts are predicting earnings growth of 5.5%.

The forward 12-month P/E ratio is 11.3, which is below the 5-year average (15.1) and below the 10-year average (15.2).

The peak weeks of the Q3 2022 earnings season for the S&P/TSX Composite start next week. Over the next three weeks, more than 180 companies in the index are expected to report results for the third quarter.

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