Excluding Amazon, S&P 500 Would Be Reporting Double-Digit Earnings Growth for Q1

The (blended) year-over-year earnings growth rate for Q1 2021 is 7.1%, which is below the five-year average earnings growth rate of 15.0% and below the 10-year average earnings growth rate of 8.8%. If 7.1% is the actual growth rate for the quarter, it will mark the lowest (year-over-year) earnings growth rate reported by the index since Q4 2020 (3.8%).

Lower Earnings Due to Macroeconomic Headwinds

The lower earnings growth rate for Q1 2022 relative to recent quarters can be attributed to both a difficult comparison to unusually high earnings growth in Q1 2021 and continuing macroeconomic headwinds. In Q1 2021, the S&P 500 reported (year-over-year) earnings growth of 91.1%, which is the second-highest year-over-year earnings growth rate reported by the index since 2008. Companies also continue to face macroeconomic headwinds, including higher costs, supply chain disruptions, labor shortages, and the military conflict in Ukraine. During the earnings season for Q4 2021, 74% of S&P 500 companies cited “inflation” and 74% of S&P 500 companies cited “supply chain” on their earnings calls from December 15 to March 14. These were the highest percentages of S&P 500 companies citing “inflation” and “supply chain” on earnings calls going back to at least 2010.

Amazon's Negative Earnings Surprise

At the company level, Amazon.com is the largest detractor to earnings growth for the S&P 500 for the first quarter due to the unusually large negative earnings surprise reported by the company. On April 28, Amazon.com reported (GAAP) EPS of -$7.56 for Q1 2022, compared to the mean EPS estimate of $8.35. It should be noted that the GAAP EPS number for Amazon.com included a pre-tax (valuation) loss of $7.6 billion. The majority of analysts provide estimates for Amazon.com on a GAAP basis. If this company were excluded, the blended earnings growth for the S&P 500 would improve to 10.1% from 7.1%.

Amazon.com is an example of a company that faced a difficult year-over-year comparison and macroeconomic headwinds. In Q1 2021, Amazon.com reported EPS of $15.79, which is the second-highest EPS number reported by the company. Regarding macroeconomic headwinds, the company stated in its press release, ”The pandemic and subsequent war in Ukraine have brought unusual growth and challenges…our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network. We know how to do this and have done it before. This make take some time, particularly as we work through ongoing inflationary and supply chain pressures…”

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