Canada Earnings Season Preview: Q4 2022

Analysts lowered their earnings estimates more than average for the fourth quarter for companies in the S&P/TSX Composite. On a per-share basis, estimated earnings for the fourth quarter decreased by 7.1% from September 30 to December 31. For a quarter, this decline was larger than the 5-year average (-1.1%), the 10-year average (-3.0%), the 15-year average (-4.5%), and the 20-year average (-3.6%).

The fourth quarter also marked the largest decline in the quarterly EPS estimate since Q2 2020 (-36.7%). At the sector level, eight of the eleven sectors recorded a decline in earnings during the quarter, led by the Materials (-24.3%), Health Care (-15.4%), and Energy (-13.8%).

Because of the net downward revisions to earnings estimates, the estimated (year-over-year) earnings growth rate for Q4 2022 is lower now relative to the start of the fourth quarter. As of today, the S&P/TSX Composite is expected to report (year-over-year) earnings growth of 1.3%, compared to the estimated (year-over-year) earnings growth rate of 3.6% on December 31 and the estimated (year-over-year) earnings growth rate of 13.3% on September 30.

If 1.3% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020. Seven of the 11 sectors are projected to report year-over-year earnings growth, led by the Utilities, Energy, and Industrials sectors. On the other hand, four sectors are predicted to report a year-over-year decline in earnings, led by the Materials, Health Care, and Information Technology sectors.

Looking ahead, analysts expect a decline in earnings of -6.6% for Q1 2023 and a decline in earnings of -4.4% for Q2 2023. For all of CY 2023, analysts are predicting a decline in earnings of -0.6%.

The forward 12-month P/E ratio is 13.4, which is below the 5-year average (14.9) and below the 10-year average (15.2).

The peak weeks of the Q4 2022 earnings season for the S&P/TSX Composite start next week. Over the next six weeks, nearly 200 companies in the index are expected to report results for the fourth quarter.

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