Expectation for 4Q22 corporate reports

The quarterly reporting season of 4Q22 is about to begin, being a factor that could influence the mood of the markets in the concise term. In this sense, analysts estimate that the S&P 500 companies would have experienced a 4.1% year-on-year contraction in their profits. If this figure is confirmed, it will mark the first time the index has reported a fall in earnings since Q320 (-5.7% YoY). Concerning revenues, prospects point to growth of 3.8% (YoY), representing a considerable adjustment compared to the 6.3% growth projected at the beginning of 4Q22.

Given the lingering concerns in the market about a possible recession, the following question emerges: would analysts have adjusted their expectations for the recently concluded quarter more than usual? The answer is yes. Throughout 4Q22, analysts cut their earnings per share (EPS) estimates by a higher-than-average margin, resulting in a downward revision of ~7%. This number exceeds historical statistics, which indicate that over the last 10 (40 quarters) and 15 years (60 quarters), the average downward revisions were 3.3% and 4.8%, respectively. If we extend the analysis period to the last 20 years (80 quarters), an average decrease of 3.8% is observed. At the industry level, nine of the eleven sectors would have followed a negative revision in their EPS, led by the Materials sector (-18.8% YoY), Consumption Discretional (-13.5% YoY) and Communication Services (-11.8% YoY). In contrast, only Energy and Utilities sectors witnessed a positive revision of 2% for each. 

In this context, full-year 2022 profits would have advanced 4.7% YoY. On the other hand, the current estimate indicates that profits could rise by 4.8% year-on-year in 2023. However, this figure may be revised downwards depending on economic conditions.

Finally, we highlight that the season’s core point will be presented between the last week of January and the first half of February.

Expected growth in profits by sector

Source: Facset