Canada Earnings Season Review: Q4 2022

At this late stage of the Q4 earnings season for the S&P/TSX Composite, the number of companies reporting a positive earnings surprise is below average, while the magnitude of earnings surprises is better than average. On a year-over-year basis, the S&P/TSX Composite is reporting a (year-over-year) decline in earnings for the first time in more than two years.

Overall, 90% of the companies in the S&P 500 have reported actual results for Q4 2022 to date. Of these companies, 52% have reported actual EPS above estimates, which is below the five-year average of 54%. In aggregate, companies are reporting earnings that are 1.2% 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 fourth quarter is -0.8% today, compared to an earnings growth rate of 3.5% at the end of the fourth quarter (December 31).

If -0.8% is the actual decline for the quarter, it will mark the first year-over-year earnings decline reported by the S&P/TSX Composite since Q3 2020 (-23.5%).

Five of the 11 sectors are reporting (or have reported) year-over-year earnings growth, led by the Industrials, Utilities, and Energy sectors. On the other hand, six sectors are reporting (or have reported) a year-over-year decline in earnings, led by the Health Care and Materials sectors.

Looking ahead, analysts expect earnings declines for the first three quarters of 2023. For Q1 2023, Q2 2023, and Q3 2023 analysts are projecting earnings declines of -11.1%, -7.8%, and -0.6%, respectively. For CY 2023, analysts are predicting a decline in earnings of -3.5%.

The forward 12-month P/E ratio is 12.7, which is below the five-year average (14.9) and below the ten-year average (15.2).

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