S&P 500 Earnings Season Update: August 5, 2022

The number of S&P 500 companies reporting positive earnings surprises and the magnitude of these earnings surprises continued to rise over the past week. As a result, the earnings growth rate for the second quarter is higher today compared to the end of last week and compared to the end of the quarter. However, both the number and magnitude of positive earnings surprises are still below their five-year averages. On a year-over-year basis, the S&P 500 is reporting its lowest earnings growth since Q4 2020. The lower earnings growth rate for Q2 2022 relative to recent quarters can be attributed to both a difficult comparison to unusually high earnings growth in Q2 2021 and continuing macroeconomic headwinds.

Below-Average Number and Magnitude of Positive Earnings Surprises

Overall, 87% of the companies in the S&P 500 have reported actual results for Q2 2022 to date. Of these companies, 75% have reported actual EPS above estimates, which is above last week’s percentage of 73% but below the five-year average of 77%. In aggregate, companies are reporting earnings that are 3.4% above estimates, which is above last week’s percentage of 3.1% but below the five-year average of 8.8%.

As a result, the index has a higher earnings growth rate for the second quarter today relative to the end of last week and relative to the end of the quarter. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the second quarter is 6.7% today, compared to an earnings growth rate of 5.8% last week and an earnings growth rate of 4.0% at the end of the second quarter (June 30).

Positive earnings surprises reported by companies in multiple sectors (led by the Energy and Health Care sectors) were responsible for the increase in the earnings growth rate over the past week. Upward revisions to EPS estimates and positive earnings surprises for companies in the Energy sector have been the largest contributors to the overall increase in the earnings growth rate for the index since the end of the second quarter (June 30).

If 6.7% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q4 2020 (4.0%). Six of the 11 sectors are reporting year-over-year earnings growth, led by the Energy, Industrials, and Materials sectors. On the other hand, five sectors are reporting a year-over-year decline in earnings, led by the Financials, Consumer Discretionary, and Communication Services sectors.

Year-Over-Year Revenue Growth Projected Across All 11 Sectors

In terms of revenues, 70% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 69%. In aggregate, companies are reporting revenues that are 3.5% above the estimates, which is above the five-year average of 1.8%. If 3.5% is the final percentage for the quarter, it will mark the third-highest revenue surprise percentage reported by the index since FactSet began tracking this metric in 2008.

As a result, the index has a higher revenue growth rate for the second quarter today relative to the end of last week and relative to the end of the quarter. The blended revenue growth rate for the second quarter is 13.6% today, compared to a revenue growth rate of 12.5% last week and a revenue growth rate of 10.1% at the end of the second quarter (June 30).

Positive revenue surprises reported by companies in multiple sectors (led by the Energy and Health Care sectors) were responsible for the increase in the revenue growth rate over the past week. Upward revisions to revenue estimates and positive revenue surprises for companies in the Energy sector have been the largest contributors to the overall increase in the revenue growth rate for the index since the end of the quarter (June 30).

If 13.6% is the actual growth rate for the quarter, it will mark the sixth-straight quarter of year-over-year revenue growth above 10% for the index. All 11 sectors are reporting year-over-year growth in revenues, led by the Energy sector.

Looking Ahead

Looking ahead, analysts expect earnings growth of 5.8% for Q3 2022 and 6.1% for Q4 2022. For CY 2022, analysts are predicting earnings growth of 8.9%.

The forward 12-month P/E ratio is 17.5, which is below the five-year average (18.6) but above the 10-year average (17.0). It is also above the forward P/E ratio of 15.8 recorded at the end of the second quarter (June 30), as the price of the index has increased while the forward EPS estimate has decreased since June 30.

During the upcoming week, 23 S&P 500 companies (including one Dow 30 component) are scheduled to report results for the second quarter.

Note: The FactSet Earnings Insight report will not be published on August 12, August 19, and August 26. The next edition of the report will be published on September 2.

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