S&P 500 Earnings Season Update: October 14, 2022

The start of the third 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 recent averages. In addition, analysts have continued to lower earnings estimates for companies since the end of the quarter. As a result, the earnings and revenue growth rates for the S&P 500 for the third quarter are lower today compared to September 30.

Overall, 7% of the companies in the S&P 500 have reported actual results for Q3 2022 to date. Of these companies, 69% have reported actual EPS above estimates, which is below the 5-year average of 77%. In aggregate, companies are reporting earnings that are 0.1% above estimates, which is well below the 5-year average of 8.7%.

As a result, the index is reporting lower earnings for the third 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 third quarter is 1.6% today, compared to an earnings growth rate of 2.2% last week and an earnings growth rate of 2.8% at the end of the third quarter (September 30). Downward revisions to earnings estimates for companies in the Financials sector and negative earnings surprises reported by companies in the Financials sector have been substantial contributors to the decline in the overall earnings growth rate for the index since last Friday and since September 30.

If 1.6% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%). Four of the eleven sectors are reporting (or are projected to report) year-over-year earnings growth, led by the Energy, Industrials, and Real Estate sectors. On the other hand, seven sectors are reporting (or are predicted to report) a year-over-year decline in earnings, led by the Financials, Communication Services, and Materials sectors.

In terms of revenues, 67% of S&P 500 companies have reported actual revenues above estimates, which is below the 5-year average of 69%. In aggregate, companies are reporting revenues that are 0.5% above the estimates, which is well below the 5-year average of 1.9%.

As a result, the index is reporting flat revenues relative to last week and lower revenues relative to the end of the quarter. The blended revenue growth rate for the third quarter is 8.5% today, compared to a revenue growth rate of 8.5% last week and a revenue growth rate of 8.7% at the end of the third quarter (September 30). Downward revisions to revenue estimates for companies in the Energy sector have been a substantial contributor to the decline in the overall revenue growth rate for the index since last Friday and since September 30.

If 8.5% is the actual growth rate for the quarter, it will mark the first time the index has reported revenue growth below 10% since Q4 2020 (3.2%). All eleven sectors are reporting (or are projected to report) year-over-year growth in revenues, led by the Energy sector.

Looking ahead, analysts expect earnings growth of 3.6% for Q4 2022 and 7.0% for CY 2022. For Q1 2023 and Q2 2023, analysts are projecting earnings growth of 5.8% and 4.3%. For CY 2023, analysts predict earnings growth of 7.6%.

The forward 12-month P/E ratio is 15.5, which is below the 5-year average (18.5) and below the 10-year average (17.1). However, it is above the forward P/E ratio of 15.2 recorded at the end of the third quarter (September 30), as the price of the index has increased while the forward 12-month EPS estimate has decreased slightly since September 30.

During the upcoming week, 66 S&P 500 companies (including eight Dow 30 components) are scheduled to report results for the third quarter.

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