Earnings Scoreboard - When trading replaces rates: Q1 begins

 

“We woke up this morning with a very different set of fuel assumptions than we had when we went to bed... And so, until we have a better sense for where structurally we see oil landing, which we do believe will be higher for longer... we'll be in a better opportunity to guide.”

— Edward Herman Bastian, CEO of Delta Air Lines, Q1 earnings call, on 8 April. Who’s scoring highest and why

As the earnings season begins, both analysts and companies have expressed less pessimism than usual regarding their earnings projections for Q1. Consequently, the estimated earnings for the S&P 500 are now slightly lower compared to initial expectations at the start of the quarter.

According to FactSet, the estimated y/o/y earnings growth rate for Q1 is expected to be 12.6%, compared to an estimate of 12.8% as of 31 December. Should the actual growth rate for the quarter reach 12.6%, this would mark the sixth consecutive quarter of double-digit y/o/y earnings growth for the index.

Furthermore, based on the average improvement in earnings growth rates during earnings seasons, the index may report earnings growth exceeding 20% for Q1. This would represent the highest earnings growth rate for the index since Q4 2021, when it achieved 32.0%.

In 37 of the past 40 quarters, the actual earnings growth rate for the S&P 500 has surpassed the estimated rate at the end of the quarter, with the exceptions being Q1 2020, Q3 2022, and Q4 2022.

Over the past five years, the earnings growth rate has increased by an average of 7.0 percentage points between the end of the quarter and the conclusion of the earnings season, due to the frequency and magnitude of positive earnings surprises. If this average increase is applied to the estimated earnings growth rate at the end of Q1, 13.2% as of 31 March, the actual earnings growth rate would reach 20.2%.

Of the 20 S&P 500 companies that have reported actual earnings for Q1 as of 10 April, 80.0% delivered actual EPS above the average estimate. Collectively, these companies reported earnings that exceeded estimates by 15.7%. Nonetheless, downward revisions to EPS estimates since the end of the quarter have offset these positive surprises, resulting in a decrease in the S&P 500 earnings growth rate by 0.6 percentage points, from 13.2% to 12.6%.

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