Canada Earnings Season Review: Q1 2023

At this late stage of the Q1 earnings season for the S&P/TSX Composite, both the number of companies reporting positive earnings surprises and the magnitude of these earnings surprises are above average. However, on a year-over-year basis, the S&P/TSX Composite is reporting its largest (year-over-year) decline in earnings since 2020.

Overall, 94% of the companies in the S&P/TSX Composite have reported actual results for Q1 2023 to date. Of these companies, 56% have reported actual EPS above estimates, which is above the five-year average of 54%. In aggregate, companies are reporting earnings that are 0.8% below estimates, which is above the five-year average of -2.0%.

The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the first quarter is -16.1% today, compared to an estimated earnings decline of -11.8% at the end of the first quarter (March 31).

If -16.1% is the actual decline for the quarter, it will mark the largest (year-over-year) decline in earnings reported by the index since Q3 2020. It will also mark the second straight quarter that the index has reported a year-over-year decrease in earnings.

Four of the eleven sectors are reporting (or have reported) year-over-year earnings growth, led by the Industrials sector. On the other hand, six sectors are reporting (or have reported) 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 the year-ago quarter. However, the sector is reporting a much larger loss for Q1 2023 compared to Q1 2022.

Looking ahead, analysts expect earnings declines for the next two quarters, but are also projecting earnings growth for the fourth quarter. For Q2 2023, and Q3 2023 analysts are predicting earnings declines of -13.4% and -4.4%, respectively. For Q4 2023, analysts are projecting earnings growth of 6.5%. For CY 2023, analysts are predicting a decline in earnings of -6.0%.

The forward 12-month P/E ratio is 13.2, which is below the five-year average (14.8) and below the ten-year average (15.2).

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