S&P 500 Earnings Season Update: February 3, 2023

At the midpoint of the Q4 earnings season, the performance of S&P 500 companies continues to be subpar. While the percentage of S&P 500 companies reporting positive earnings surprises remained flat over the past week, the magnitude of these earnings surprises decreased during this time, mainly due to negative EPS surprises reported by a number of large technology companies. Both metrics are below their 5-year and 10-year averages. As a result, the earnings decline for the fourth quarter is larger today compared to the end of last week and compared to the end of the quarter. If the index reports an actual decline in earnings for Q4 2022, it will mark the first year-over-year decline in earnings reported by the index since Q3 2020.

Overall, 50% of the companies in the S&P 500 have reported actual results for Q4 2022 to date. Of these companies, 70% have reported actual EPS above estimates, which is equal to the percentage of 70% at the end of last week, but below the 5-year average of 77% and below the 10-year average of 73%. In aggregate, companies are reporting earnings that are 0.6% above estimates, which is below the percentage of 1.5% at the end of last week, below the 5-year average of 8.6%, and below the 10-year average of 6.4%. If 0.6% is the actual surprise percentage for the quarter, it will mark the lowest surprise percentage reported by the index since 2008.

As a result, the index is reporting lower earnings for the fourth 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 decline for the fourth quarter is -5.3% today, compared to an earnings decline of -5.1% last week and an earnings decline of -3.3% at the end of the fourth quarter (December 31).

Negative earnings surprises reported by companies in the Communication Services, Information Technology, and Consumer Discretionary sectors, partially offset by positive earnings surprises reported by companies in the Health Care sector, were the top contributors to the increase in the earnings decline for the index during the past week. Negative earnings surprises and downward revisions to earnings estimates for companies in the Financials and Communication Services sectors have been the largest contributors to the increase in the overall earnings decline for the index since December 31.

If -5.3% is the actual decline for the quarter, it will mark the first time the index has reported a year-over-year decrease in earnings since Q3 2020 (-5.7%). Four of the eleven sectors are reporting year-over-year earnings growth, led by the Energy and Industrials sectors. On the other hand, seven sectors are reporting a year-over-year decline in earnings, led by the Communication Services, Materials, and Consumer Discretionary sectors.

In terms of revenues, 61% of S&P 500 companies have reported actual revenues above estimates, which is below the 5-year average of 69% and below 10-year average of 63%. In aggregate, companies are reporting revenues that are 1.1% above the estimates, which is below the 5-year average of 1.9% and below the 10-year average of 1.3%.

Despite the below-average performance compared to estimates, the index is reporting higher revenues for the fourth quarter today relative to the end of last week and relative to the end of the quarter. The blended revenue growth rate for the fourth quarter is 4.3% today, compared to a revenue growth rate of 3.9% last week and a revenue growth rate of 3.9% at the end of the fourth quarter (December 31).

Positive revenue surprises reported by companies in multiple sectors (led by the Consumer Discretionary, Energy, and Health Care sectors) were the largest contributors to the increase in the revenue growth rate for the index during the past week. Positive revenue surprises reported by companies in the Consumer Discretionary, Energy, and Health Care sectors have also been the top contributors to the increase in the overall revenue growth rate since December 31.

If 4.3% is the actual growth rate for the quarter, it will mark the lowest revenue growth rate reported by the index since Q4 2020 (3.2%). Eight sectors are reporting year-over-year growth in revenues, led by the Energy, Consumer Discretionary, and Industrials sectors. Three sectors are reporting a year-over-year decline in revenues, led by the Utilities sector.

Looking ahead, analysts expect earnings declines for the first half of 2023, but earnings growth for the second half of 2023. For Q1 2023 and Q2 2023, analysts are projecting earnings declines of -4.2% and -2.9%, respectively. For Q3 2023 and Q4 2023, analysts are projecting earnings growth of 3.4% and 10.5%, respectively. For all of CY 2023, analysts predict earnings growth of 3.0%.

The forward 12-month P/E ratio is 18.4, which is below the 5-year average (18.5) but above the 10-year average (17.2). It is also above the forward P/E ratio of 16.7 recorded at the end of the fourth quarter (December 31), as the price of the index has increased while the forward 12-month EPS estimate has decreased since December 31.

During the upcoming week, 95 S&P 500 companies (including one Dow 30 component) are scheduled to report results for the fourth quarter.

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