S&P 500 CY 2023 Earnings Preview: Less Than 1% Growth Expected

CY 2023 Earnings Growth: 0.6%

Analysts expect the S&P 500 to report earnings growth of less than 1% in CY 2023. The estimated (year-over-year) earnings growth rate for CY 2023 is 0.6%, which is below the trailing 10-year average (annual) earnings growth rate of 8.4% (2013 – 2022). On a quarterly basis, the S&P 500 reported earnings declines of -1.7% and -4.1% for Q1 2023 and Q2 2023. However, the index reported earnings growth of 4.9% for Q3 2023 and is projected to report an earnings growth of 2.4% for Q4 2023.

Eight sectors are predicted to report year-over-year growth in earnings in CY 2023, led by the Consumer Discretionary and Communication Services sectors. Three sectors are projected to report a year-over-year decline in earnings: Energy, Materials, and Health Care.

The Consumer Discretionary sector is expected to report the highest (year-over-year) earnings growth rate of all eleven sectors at 43.9%. At the industry level, 4 of the 9 industries in the sector are projected to report a year-over-year increase in earnings. A growth rate is not being calculated for the Broadline Retail industry due to the loss reported by the industry in CY 2022. However, the Broadline Retail industry is expected to report earnings of $30.0 billion in CY 2023 compared to a loss of -$1.2 billion in CY 2022. The other three industries predicted to report year-over-year earnings growth are the Hotels, Restaurants, & Leisure (206%), Automobile Components (20%), and Textiles, Apparel, & Luxury Goods (1%) industries. On the other hand, five industries are expected to report a year-over-year decline in earnings. Three of these five industries are projected to report a decrease in earnings of more than 10%: Leisure Products (-36%), Automobiles (-12%), and Household Durables (-11%).

At the industry level, the Broadline Retail and Hotels, Restaurants, & Leisure industries are the largest contributors to earnings growth for the sector. If these two industries were excluded, the Consumer Discretionary sector would be reporting a (year-over-year) decline in earnings of -7.1% instead of year-over-year earnings growth if 43.9%.

At the company level, Amazon.com ($2.67 vs. -$0.27) is the largest contributor to earnings growth for the sector. If this company were excluded, the estimated earnings growth rate for the Consumer Discretionary sector would fall to 16.2% from 43.9%.

The Communication Services sector is expected to report the second-largest (year-over-year) earnings growth rate of all eleven sectors at 23.4%. At the industry level, 3 of the 5 industries are projected to report a year-over-year increase in earnings of more than 30%: Wireless Telecommunication Services (226%), Entertainment (192%), and Interactive Media & Services (33%). On the other hand, the other two industries in the sector are expected to report a year-over-year decline in earnings: Diversified Telecommunication Services (-7%) and Media (-4%).

At the company level, Meta Platforms ($14.36 vs. $8.59) and Warner Bros. Discovery (-$1.12 vs. -$3.82) are the largest contributors to earnings growth for the sector. If these two companies were excluded, the estimated earnings growth rate for Communication Services sector would fall to 11.3% from 23.4%.

The Energy sector is expected to report the largest (year-over-year) earnings decline of all eleven sectors at -29.0%. Lower year-over-year oil prices are contributing to the year-over-year decrease in earnings for this sector. The average price of oil in CY 2023 ($77.78) is 18% below the average price for oil in CY 2022 ($94.33). At the sub-industry level, three of the five sub-industries in the sector are projected to report a year-over-year decrease in earnings of more than 25%: Integrated Oil & Gas (-36%), Oil & Gas Exploration & Production (-32%), and Oil & Gas Refining & Marketing (-27%). On the other hand, the other two sub-industries are predicted to report year-over-year earnings growth of 20% or more: Oil & Gas Equipment & Services (44%) and Oil & Gas Storage & Transportation (23%).

The Materials sector is expected to report the second-largest (year-over-year) earnings decline of all eleven sectors at -23.2%. At the industry level, three of the four industries in this sector are predicted to report a year-over-year decline in earnings of more than 20%: Metals & Mining (-34%), Containers & Packaging (-24%), and Chemicals (-21%). On the other hand, the Construction Materials (44%) industry is the only industry in the sector that is projected to report (year-over-year) earnings growth.

The Health Care sector is expected to report the third-largest (year-over-year) earnings decline of all eleven sectors at -21.1%. 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 projected to report a double-digit decline: Pharmaceuticals (-43%), Biotechnology (-28%), and Life Sciences, Tools, & Services (-10%) industries. On the other hand, the Health Care Providers & Services (5%) industry is the only industry in the sector expected to report (year-over-year) earnings growth.

At the industry level, the Pharmaceuticals industry is the largest contributor to the earnings decline for the sector. If this industry were excluded, the estimated earnings decline for the Health Care sector would improve to -8.8% from -21.1%.

CY 2023 Revenue Growth: 2.3%

Analysts expect the S&P 500 will report single-digit revenue growth in CY 2023. The estimated (year-over-year) revenue growth rate for CY 2023 is 2.3%, which is below the trailing 10-year average (annual) revenue growth rate of 5.5% (2013 – 2022). On a quarterly basis, revenue growth has been inconsistent for all four quarters for CY 2023. For Q1 2023 through Q3 2023, the S&P 500 reported revenue growth of 4.1%, 0.9%, and 2.4%, respectively. For Q4 2023, the estimated revenue growth rate is 3.1%.

Nine sectors are predicted to report year-over-year growth in revenues in CY 2023, led by the Consumer Discretionary (7.5%) sector. Two sectors are projected to report a year-over-year decline in revenues: Energy (-14.9%) and Materials (-8.9%).

CY 2023 Net Profit Margin: 11.6%

The estimated net profit margin (based on aggregate estimates for revenues and earnings) for the S&P 500 for CY 2023 is 11.6%, which is below the net profit margin of 11.8% for CY 2022 but above the 10-year average (annual) net profit margin of 10.6%.

At the sector level, six of the eleven sectors are projected to report a higher net profit margin in CY 2023 relative to CY 2022, led by the Consumer Discretionary (7.9% vs. 5.9%) and Communication Services (11.7% vs. 9.9%) sectors. On the other hand, four sectors are predicted to a report a lower net profit margin in CY 2023 relative to CY 2022, led by the Health Care (8.0% vs. 10.6%) sector. The Consumer Staples (6.2% vs. 6.2%) sector is the only sector projected to report no change in its net profit margin in CY 2023 relative to CY 2022.

The FactSet Earnings Insight report will not be published on December 22 and December 29. The next edition of the report will be published on January 5.

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