S&P 500 CY 2022 Earnings Preview: Ex-Energy, S&P 500 Expected to Report Decline in Earnings

CY 2022 Earnings Growth: 5.1%

Despite a difficult comparison to an unusual high earnings growth rate in CY 2021, analysts still expect the S&P 500 to report single-digit earnings growth in CY 2022. The estimated (year-over-year) earnings growth rate for CY 2022 is 5.1%, which is below the trailing 10-year average (annual) earnings growth rate of 8.5% (2012 – 2021). It is also below the estimates of 9.1% on June 30 and 6.9% on September 30, as analysts have lowered earnings estimates in aggregate for CY 2022 over the past six months.

Most of the (year-over-year) earnings growth for CY 2022 occurred in the first half of the 2022. For Q1 2022 and Q2 2022, the S&P 500 reported earnings growth of 9.4% and 5.8%. However, the index reported earnings growth of 2.5% for Q3 2022 and is projected to report an earnings decline of -2.8% for Q4 2022.

Eight of the eleven sectors are predicted to report year-over-year growth in earnings in CY 2022, led by the Energy, Industrials, and Real Estate sectors. On the other hand, three sectors are projected to report a year-over-year decline in earnings: Financials, Communication Services, and Consumer Discretionary.

The Energy sector is expected to report the highest (year-over-year) earnings growth of all eleven sectors at 151.7%. Higher year-over-year oil prices are contributing to the year-over-year improvement in earnings for this sector, as the average price of oil in CY 2022 to date ($95.10) is 40% above the average price for oil in CY 2021 ($68.11). At the sub-industry level, all five sub-industries in the sector are expected to report a year-over-year increase in earnings. Four of the sub-industries are projected to report earnings growth above 75%: Oil & Gas Refining & Marketing (518%), Integrated Oil & Gas (152%), Oil & Gas Exploration & Production (120%), and Oil & Gas Equipment & Services (76%).

The Energy sector is also expected to be the largest contributor to earnings growth for the S&P 500 for CY 2022. If this sector were excluded, the index would be expected to report a decline in earnings of -1.8% rather than growth in earnings of 5.1%.

The Industrials sector is expected to report the second-highest (year-over-year) earnings growth rate of all eleven sectors at 27.4%. At the industry level, 11 of the 12 industries in the sector are expected to report a year-over-year increase in earnings. A growth rate is not being calculated for the Airlines industry due to the loss reported by the industry last year. However, the Airlines industry is projected to report a profit of $4.4 billion in CY 2022 compared to a loss of -$14.1 billion in CY 2021. Six of the remaining ten industries are predicted to report earnings growth at or above 10%: Trading Companies & Distributors (36%), Construction & Engineering (29%), Machinery (13%), Commercial Services & Supplies (13%), Road & Rail (12%), and Electrical Equipment (10%). On the other hand, the Air Freight & Logistics (-1%) industry is the only industry in the sector projected to report a year-over-year decline in earnings.

At the industry level, the Airlines industry is predicted to be the largest contributor to earnings growth for the sector. If the five companies in this industry were excluded, the estimated earnings growth rate for the Industrials sector would fall to 9.5% from 27.4%.

The Real Estate sector is expected to report the third-highest (year-over-year) earnings (FFO) growth rate of all eleven sectors at 15.5%. At the sub-industry level, seven of the eight sub-industries in the sector are expected to report a year-over-year increase in earnings (FFO), led by the Hotel & Resort REITs (194%) and Industrial REITs (54%) sub-industries. On the other hand, the Real Estate Services (-1%) sub-industry is the only sub-industry in this sector that is projected to report a year-over-year decline in earnings.

The Financials sector is expected to report the largest (year-over-year) earnings decline of all eleven sectors at -16.2%. At the industry level, four of the five industries in this sector are predicted to report a year-over-year earnings decline of more than 15%: Consumer Finance (-24%), Banks (-18%), Capital Markets (-17%), and Insurance (-16%). On the other hand, the Diversified Financial Services (19%) industry is the only industry in the sector projected to report (year-over-year) earnings growth.

The Financials sector is also expected to be the largest detractor to earnings growth for the S&P 500 for CY 2022. If this sector were excluded, the estimated earnings growth for the index would improve to 9.8% from 5.1%.

The Communication Services sector is expected to report the second-largest (year-over-year) earnings decline of all eleven sectors at -14.7%. At the industry level, four of the five industries in this sector are predicted to report a year-over-year decline in earnings. Three of these four industries are predicted to report a double-digit decline: Interactive Media & Services (-23%), Entertainment (-20%), and Wireless Telecommunication Services (-15%) industries. On the other hand, the Media (2%) industry is the only industry in the sector projected to report (year-over-year) earnings growth.

At the company level, Alphabet, Meta Platforms, and Warner Bros. Discovery are the largest contributors to the expected earnings decline for the sector. If these three companies were excluded, the sector would be expected to report earnings growth of 1.3% rather than a decline in earnings of -14.7%.

The Consumer Discretionary sector is expected to report the third-largest (year-over-year) earnings decline of all eleven sectors at -13.7%. At the industry level, four of the ten industries in the sector are expected to report a year-over-year decline in earnings of 10% or more: Internet & Direct Marketing Retail (-99%), Multiline Retail (-31%), Textiles, Apparel & Luxury Goods (-10%), and Leisure Products (-10%). On the other hand, the other six industries in the sector are projected to report earnings growth. A growth rate is not being calculated for the Hotels, Restaurants, and Leisure industry due to the loss reported by the industry last year. However, this industry is projected to report a profit of $11.2 billion in CY 2022 compared to a loss of -$210 million in CY 2021. Two of the remaining five industries are predicted to reporting earnings growth at or above 10%: Automobiles (37%) and Auto Components (14%).

At the company level, Amazon is the largest contributor to the expected earnings decline for the sector. If this company were excluded, the sector would be expected to report earnings growth of 14.7% rather than a decline in earnings of -13.7%.

CY 2022 Revenue Growth: 10.4%

Despite a difficult comparison to an unusual high revenue growth rate in CY 2021, analysts still expect the S&P 500 to report double-digit growth in CY 2022 for the second consecutive year. The estimated (year-over-year) revenue growth rate for CY 2022 is 10.4%, which is above the trailing 10-year average (annual) revenue growth rate of 4.1% (2012 – 2021). It is also slightly below the estimates of 10.7% on June 30 and 10.8% on September 30.

All eleven sectors are projected to report year-over-year growth in revenues. Five of these eleven sectors are projected to report double-digit growth, led by the Energy sector.

The Energy sector is expected to report the highest (year-over-year) revenue growth of all eleven sectors at 45.1%. Higher year-over-year oil prices are contributing to the year-over-year improvement in earnings for this sector, as the average price of oil in CY 2022 to date ($95.10) is 40% above the average price for oil in CY 2021 ($68.11). At the sub-industry level, all five sub-industries in the sector are expected to report a year-over-year increase in revenues above 15%: Oil & Gas Exploration & Production (53%), Integrated Oil & Gas (50%), Oil & Gas Refining & Marketing (43%), Oil & Gas Storage & Transportation (25%), and Oil & Gas Equipment & Services (18%).

The Energy sector is also expected to be the largest contributor to revenue growth for the S&P 500 for CY 2022. If this sector were excluded, the estimated revenue growth rate for the index would fall to 7.6% from 10.4%.

CY 2022 Net Profit Margin: 12.0%

The estimated net profit margin (based on aggregate estimates for revenues and earnings) for the S&P 500 for 2022 is 12.0%, which is below the net profit margin of 12.6% for CY 2021 but above the 10-year average (annual) net profit margin of 10.3%. If 12.0% 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, four of the eleven sectors are projected to report higher net profit margins in CY 2022 relative to CY 2021, led by the Energy (13.2% vs. 7.6%) sector. On the other hand, seven sectors are projected to report lower net profit margins in CY 2022 relative to CY 2021, led by the Financials (16.4% vs. 20.1%) sector.

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