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S&P 500 CY 2023 Earnings Preview: Consumer Discretionary Sector Leads Earnings Growth

Earnings

By John Butters  |  December 9, 2022

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CY 2023 Earnings Growth: 5.5%

Despite concerns about a possible recession next year, analysts still expect the S&P 500 to report single-digit earnings growth in CY 2023. The estimated (year-over-year) earnings growth rate for CY 2023 is 5.5%, which is below the trailing 10-year average (annual) earnings growth rate of 8.5% (2012 – 2021). It is also below the estimates of 9.6% on June 30 and 8.2% on September 30, as analysts have lowered CY 2023 earnings estimates in aggregate over the past few months.

Analysts are expecting most of the earnings growth to occur in the second half of the 2023. For Q1 2023 and Q2 2023, analysts are projecting earnings growth of 1.1% and 0.6%. For Q3 2023 and Q4 2023, analysts are projecting earnings growth of 6.4% and 10.4%

Eight of the eleven sectors are predicted to report year-over-year growth in earnings in CY 2023, led by the Consumer Discretionary, Industrials, Financials, and Communication Services sectors. On the other hand, three sectors are projected to report a year-over-year decline in earnings, led by the Energy and Materials sectors.

The Consumer Discretionary sector is expected to report the highest (year-over-year) earnings growth rate of all eleven sectors at 35.8%. At the industry level, nine of the ten industries in this sector are projected to report a year-over-year increase in earnings. Five of these nine industries are predicted to report double-digit earnings growth: Internet & Direct Marketing Retail (3,547%), Hotels, Restaurants, & Leisure (160%), Multiline Retail (26%), Auto Components (25%), and Leisure Products (12%). On the other hand, the Household Durables (-25%) industry is the only industry projected to report a year-over-year decline in earnings for the year. The Internet & Direct Marketing Retail and Hotels, Restaurants, & Leisure industries are also projected to be the largest contributors to earnings growth for the sector for the year. If these two industries were excluded, the estimated earnings growth rate for the Consumer Discretionary sector would fall to 2.9% from 35.8%.

At the company level, Amazon.com is expected to be the largest contributor to earnings growth for the sector for the year, accounting for almost half of the projected earnings growth for the sector. The company is expected to report of EPS of $1.86 in CY 2023 relative to estimated EPS of -$0.10 in CY 2022. If this company were excluded, the estimated earnings growth rate for the Consumer Discretionary sector would fall to 18.6% from 35.8%.

The Consumer Discretionary sector is also projected to be the largest contributor to earnings growth for the index in CY 2023. If this sector were excluded, the estimated earnings growth rate for the S&P 500 for CY 2023 would fall to 3.5% from 5.5%.

The Industrials sector (along with the Financials sector) is expected to report the second-highest (year-over-year) earnings growth rate of all eleven sectors at 13.9%. At the industry level, ten of the twelve industries in the sector are projected to report a year-over-year increase in earnings. Four of these ten industries are expected to report double-digit earnings growth: Airlines (98%), Aerospace & Defense (45%), Industrials Conglomerates (17%), and Construction & Engineering (10%). On the other hand, two industries are predicted to report a year-over-year decline in earnings, led by the Air Freight & Logistics (-9%) industry. At the company level, Boeing is expected to be the largest contributor to earnings growth for the sector for the year. The company is expected to report EPS of $3.73 in CY 2023 relative to estimated EPS of -$7.92 in CY 2022. If this company were excluded, the estimated earnings growth rate for the Industrials sector would fall to 8.7% from 13.9%.

The Financials sector (along with the Industrials sector) is expected to report the second-highest (year-over-year) earnings growth rates of all eleven sectors also at 13.9%. At the industry level, four of five industries in this sector are projected to report a year-over-year increase in earnings. Three of these four industries are expected to report double-digit earnings growth: Insurance (29%), Banks (14%), and Capital Markets (12%). On the other hand, the Consumer Finance (-5%) industry is the only industry in the sector predicted to report a year-over-year decline in earnings for the year.

The Communication Services sector is expected to report the fourth-highest (year-over-year) earnings growth rate of all eleven sectors at 10.3%. At the industry level, four of the five industries in the sector are projected to report a year-over-year increase in earnings, led by the Wireless Telecommunication Services (233%) and Entertainment (61%) industries. On the other hand, the Diversified Telecommunication Services (-4%) industry is the only industry in the sector predicted to report a year-over-year decline in earnings for the year. At the company level, T-Mobile and Warner Bros. Discovery are expected to be the largest contributors to earnings growth for the sector for the year. If these two companies were excluded, the estimated earnings growth rate for the Communication Services sector would fall to 3.8% from 10.3%.

The Energy sector is expected to report the largest (year-over-year) earnings decline of all eleven sectors at -12.4%. At the sub-industry level, three of the five sub-industries in the sector are projected to report a decrease in earnings: Oil & Gas Refining & Marketing (-37%), Integrated Oil & Gas (-15%), and Oil & Gas Exploration & Production (<-1%). The other two sub-industries in the sector are predicted to report (year-over-year) earnings growth: Oil & Gas Equipment & Services (46%) and Oil & Gas Storage & Transportation (11%).

The Energy sector is also projected to be the largest detractor to earnings growth for the index in CY 2023. If this sector were excluded, the estimated earnings growth rate for the S&P 500 for CY 2023 would improve to 7.6% from 5.5%.

The Materials sector is expected to report the second-largest (year-over-year) earnings decline of all eleven sectors at -9.1%. At the industry level, three of the four industries in the sector are projected to report a year-over-year decrease in earnings, led by the Metals & Mining (-41%) industry. On the other hand, the Construction Materials (24%) industry is the only industry in the sector predicted to report year-over-year growth in earnings for the year. The Metals & Mining industry is also expected to be the largest contributor to the earnings decline for the sector. If this industry were excluded, the estimated earnings decline for the Materials sector would improve to -1.3% from -9.1%.

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CY 2023 Revenue Growth: 3.3%

Analysts also expect the S&P 500 will report low, single-digit revenue growth in CY 2023. The estimated (year-over-year) revenue growth rate for CY 2023 is 3.3%, which is below the trailing 10-year average (annual) revenue growth rate of 4.1% (2012 – 2021). It is also below the estimates of 4.7% on June 30 and 4.4% on September 30, as analysts have lowered revenue estimates in aggregate for CY 2023 over the past few months.

Nine of the eleven sectors are projected to report year-over-year growth in revenues, led by the Financials and Consumer Discretionary sectors. On the other hand, two sectors are projected to report a year-over-year decline in revenues, led by the Energy sector.

The Financials sector is expected to report the highest (year-over-year) revenue growth rate of all eleven sectors at 8.7%. At the industry level, all five industries in the sector are projected to report a year-over-year increase in revenues: Diversified Financial Services (27%), Consumer Finance (10%), Banks (9%), Capital Markets (5%), and Insurance (1%). At the company level, Berkshire Hathaway is expected to be the largest contributor to revenue growth for the sector for the year. The company is projected to report revenues of $333.7 billion in CY 2023, relative to estimated revenues of $262.2 billion in CY 2022. If this company were excluded, the estimated revenue growth rate for the Financials sector would fall to 5.2% from 8.7%.

The Consumer Discretionary sector is expected to report the second-highest (year-over-year) revenue growth rate of all eleven sectors at 6.9%. At the industry level, nine of the ten industries in this sector are projected to report a year-over-year increase in revenues. Three of these nine industries are predicted to report double-digit revenue growth: Hotels, Restaurants, & Leisure (18%), Automobiles (12%), and Internet & Direct Marketing Retail (11%). On the other hand, the Household Durables (-10%) industry is the only industry in the sector predicted to report a year-over-year decline in revenues for the year. The Hotels, Restaurants, & Leisure, Automobiles, and Internet & Direct Marketing Retail industries are also the expected to be the largest contributors to revenue growth for the sector in CY 2023. If these three industries were excluded, the estimated revenue growth rate for the Consumer Discretionary sector would fall to 0.5% from 6.9%.

The Energy sector is expected to report the largest (year-over-year) revenue decline of all eleven sectors at -7.3%. At the sub-industry level, three of the five sub-industries in the sector are projected to report a decrease in revenues: Oil & Gas Refining & Marketing (-14%), Integrated Oil & Gas (-8%), and Oil & Gas Exploration & Production (-2%). The other two sub-industries in the sector are project to report (year-over-year) revenue growth: Oil & Gas Equipment & Services (16%) and Oil & Gas Storage & Transportation (5%).

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CY 2023 Net Profit Margin: 12.3%

The estimated net profit margin (based on aggregate estimates for revenues and earnings) for the S&P 500 for 2023 is 12.3%, which is above the estimated net profit margin of 12.0% for CY 2022 and above the 10-year average (annual) net profit margin of 10.3%. If 12.3% is the actual net profit margin for the year, it will mark the second-highest (annual) net profit margin reported by the index since FactSet began tracking this metric in 2008. The current record is 12.6%, which occurred in CY 2021.

At the sector level, six of the eleven sectors are projected to report higher net profit margins in CY 2023 relative to expectations for CY 2022, led by the Consumer Discretionary (7.3% vs. 5.8%) sector. On the other hand, four sectors are projected to report lower net profit margins in CY 2023 relative to expectations for CY 2022, led by the Materials (11.4% vs. 12.2%) sector.

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This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

 

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John Butters

Vice President, Senior Earnings Analyst

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.