Oracle’s ORCL quarterly release on Monday, September 11th, kick-started the Q3 earnings season, with reports from Lennar LEN and Adobe ADBE since then adding to the tally.
The earnings reports from Oracle, Lennar, and Adobe were for their respective fiscal quarters ending in August, which we and other research organizations count as part of the overall September-quarter or Q3 tally.
We have another five S&P 500 members on deck to report fiscal August quarter results this week, including FedEx FDX. In fact, by the time the big banks come out with their quarterly reports on October 13th, we will have seen such fiscal August-quarter results from almost two dozen S&P 500 members.
Beyond these early earnings reports, the overall earnings picture has unfolded much more positively and favorably than many thought possible just a few quarters back. The most significant contributing factor to this positive earnings surprise has been the resilience of the U.S. economy despite the Fed’s extraordinary tightening cycle.
While a segment of the market is still of the ‘recession-is-coming’ view, the market as a whole appears to have taken its collective cue from the continuous run of steady and reassuring economic readings, coming around to the soft-landing view of the ground reality.
Regular readers of our earnings commentary are aware of the stabilization in the aggregate earnings estimate revisions trend since the start of 2023 Q2, which followed the roughly year-long negative revisions trend.
Since early April 2023, earnings estimates for full-year 2023 have declined by -0.34% for the S&P 500 index as a whole, with declining estimates for 9 of the 16 Zacks sectors, particularly the Energy sector, offsetting notable gains in other sectors.
Estimates for the Energy sector have been consistently under pressure, with the aggregate 2023 earnings estimates for the sector getting cut by -11.1% since the start of April 2023.
Excluding this negative Energy sector revisions trend, aggregate earnings estimates for the remaining 15 Zacks sectors would have risen by +0.7% in that time period.
Sectors enjoying positive estimate revisions in this period include Tech, Construction, Autos, Consumer Discretionary, Industrial Products, Retail, and Consumer Discretionary.
We are seeing a similar revisions trend at play concerning estimates for 2023 Q3, whose advanced results include the aforementioned quarterly releases from Oracle, Lennar, and Adobe Systems.
The current expectation is for S&P 500 earnings to decline by -1.7% in Q3 from the same period last year on +0.8% higher revenues. This would follow the -7.1% decline on +1.1% higher revenues in 2023 Q2.
The chart below highlights the year-over-year Q3 earnings and revenue growth in the context of where growth has been in recent quarters and what is expected in the next few periods.
Image Source: Zacks Investment Research
As you can see here, 2023 Q3 is expected to be the last period of declining earnings for the index, with positive growth resuming from 2023 Q4 onwards. In fact, had it not been for the Energy sector drag, earnings growth in 2023 Q3 would already be positive.
You can see this in the chart below, which illustrates the index’s year-over-year earnings growth on an ex-Energy basis.
Image Source: Zacks Investment Research
The chart below shows the year-over-year change in net margins, with Q3 currently expected to be the 7th consecutive quarter of declining margins.
Image Source: Zacks Investment Research
Excluding the Energy sector, however, net margins would be modestly up from the year-earlier period.
One sector that has made significant progress on the margins front is the Tech sector, whose year-over-year comparison turned positive in the preceding period and is expected to expand further this quarter, as the chart below shows.
Image Source: Zacks Investment Research
The chart below shows the earnings and revenue growth picture on an annual basis.
Image Source: Zacks Investment Research
Look at current expectations for next year and the year after to get a sense of the disconnect between the reality of current bottom-up aggregate earnings estimates and the seemingly never-ending worries about an impending economic downturn. That said, most economic analysts have been steadily lowering their recessionary odds in recent months.
This Week’s Notable Earnings Releases
This week, we have a relatively light reporting docket, with a little over a dozen companies on deck to report quarterly results, including 5 S&P 500 members. These index members are AutoZone, General Mills, FedEx, Darden, and FactSet.
FedEx shares have been standout performers this year, up +57.4% and handily outperforming UPS (down -9.4%) and the S&P 500 index (up +16.6%). Estimates for this quarter and next have ticked higher lately, likely suggesting that the wind may finally be at the company’s back. FedEx will report quarterly results after the market’s close on Wednesday, September 20th.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Looking Ahead to Q3 Earnings
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Oracle Corporation (ORCL) : Free Stock Analysis Report
Adobe Inc. (ADBE) : Free Stock Analysis Report
FedEx Corporation (FDX) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
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