S&P 500 Earnings Season Update: October 28, 2022

At the mid-point of the earnings season for the third quarter, the percentage of S&P 500 companies reporting a positive earnings surprise and the aggregate (percentage) difference between actual earnings and estimated earnings are below their 5-year and 10-year averages. As a result, earnings for the third quarter are higher today relative to the end of last week, but still lower today relative to the end of the quarter. On a year-over-year basis, the S&P 500 is reporting its lowest earnings growth since Q3 2020.

Overall, 52% of the companies in the S&P 500 have reported actual results for Q3 2022 to date. Of these companies, 71% have reported actual EPS above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%. In aggregate, companies are reporting earnings that are 2.2% above estimates, which is below the 5-year average of 8.7% and below the 10-year average of 6.5%. If 2.2% is the final percentage for the quarter, it will mark the second-lowest surprise percentage reporting by the index in the past nine years.

As a result, the index is reporting higher earnings for the third quarter today relative to the end of last week, but lower 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 third quarter is 2.2% today, compared to an earnings growth rate of 1.3% last week and an earnings growth rate of 2.8% at the end of the third quarter (September 30).

Positive earnings surprises reported by companies in multiple sectors (led by the Energy and Information Technology sectors), partially offset by negative earnings surprises reported by companies in the Communication Services and Industrials sectors, were the largest contributors to the increase in the overall earnings growth rate for the index since last Friday. Negative earnings surprises (along with some downward revisions to earnings estimates) reported by companies in the Financials, Communication Services, and Industrials sectors, partially offset by positive earnings surprises reported by companies in the Energy sector, have been the largest contributors to the decrease in the overall earnings growth rate since September 30.

If 2.2% 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 year-over-year earnings growth, led by the Energy, Real Estate, and Industrials sectors. On the other hand, seven sectors are reporting a year-over-year decline in earnings, led by the Communication Services, Financials, and Materials sectors.

In terms of revenues, 68% of S&P 500 companies have reported actual revenues above estimates, which is below the 5-year average of 69% but above the 10-year average of 62%. In aggregate, companies are reporting revenues that are 1.7% above the estimates, which is below the 5-year average of 1.9% but above the 10-year average of 1.2%.

As a result, the index is reporting higher revenues for the third quarter today relative to the end of last week and relative to the end of the quarter. The blended revenue growth rate for the third quarter is 9.3% 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).

Positive revenue surprises reported by companies in the Energy sector were the largest contributors to the increase in the overall revenue growth rate during the past week. Positive revenue surprises (along with some upward revisions to revenue estimates) reported by companies in the Energy, Financials, and Consumer Staples sectors, partially offset by negative revenue surprises reported by companies in the Communication Services sector, have been the largest contributors to the increase in the overall revenue growth rate since September 30.

If 9.3% 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 year-over-year growth in revenues, led by the Energy sector.

Looking ahead, analysts expect earnings growth of 0.5% for Q4 2022 and 6.1% for CY 2022. For Q1 2023 and Q2 2023, analysts are projecting earnings growth of 3.2% and 2.0%. For CY 2023, analysts predict earnings growth of 6.4%.

The forward 12-month P/E ratio is 16.3, 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 since September 30.

During the upcoming week, 167 S&P 500 companies (including one Dow 30 component) are scheduled to report results for the third quarter.

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