S&P 500 Earnings Season Update: July 15, 2022

The start of the second quarter earnings season for the S&P 500 has been weaker than normal, as the number and magnitude of positive earnings and revenue surprises have been smaller than average. As a result, there has been little improvement in the earnings and revenue growth rates for the second quarter since June 30.

Actual Earnings Beating Estimates, but by Less Than Average

Overall, 7% of the companies in the S&P 500 have reported actual results for Q2 2022 to date. Of these companies, 60% have reported actual EPS above estimates, which is below the five-year average of 77%. In aggregate, companies are reporting earnings that are 2.0% above estimates, which is below the five-year average of 8.8%.

As a result, the index is reporting lower earnings for the second quarter today relative to the end of last week, but still reporting higher earnings today 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 4.2% today, compared to an earnings growth rate of 4.4% last week and an earnings growth rate of 4.0% at the end of the second quarter (June 30).

Negative earnings surprises reported by companies in the Financials sector and downward revisions to estimates for a company in the Industrials sector were substantial contributors to the decline in the earnings growth rate over the past week. Upward revisions to estimates for companies in the Energy sector have been the largest contributor to the overall increase in earnings for the index since the end of the second quarter (June 30).

If 4.2% 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 (or are projected to report) year-over-year earnings growth, led by the Energy and Industrials sectors. On the other hand, five sectors are reporting (or are predicted to report) a year-over-year decline in earnings, led by the Financials sector.

All Sectors Report Year-Over-Year Growth in Revenues

In terms of revenues, 60% of S&P 500 companies have reported actual revenues above estimates, which is below the five-year average of 69%. In aggregate, companies are reporting revenues that are 0.8% above the estimates, which is below the five-year average of 1.8%.

Due in part to this below average performance, there has been little change in the revenue growth rate over the past two weeks. The blended revenue growth rate for the second quarter is 10.2% today, compared to a revenue growth rate of 10.2% last week and a revenue growth rate of 10.1% at the end of the second quarter (June 30).

If 10.2% 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 (or are projected to report) year-over-year growth in revenues, led by the Energy and Materials sectors.

Looking Ahead

Looking ahead, analysts expect earnings growth of 10.1% for Q3 2022, and 9.2% for Q4 2022. For CY 2022, analysts are predicting earnings growth of 9.9%.

The forward 12-month P/E ratio is 15.8, which is below the five-year average (18.6) and below the 10-year average (17.0). However, it is equal to the forward P/E ratio of 15.8 recorded at the end of the second quarter (June 30), as both the price of the index and forward EPS estimate are nearly equal to the numbers on June 30.

During the upcoming week, 73 S&P 500 companies (including seven Dow 30 components) are scheduled to report results for the second quarter.

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