Now that Corporate America’s earnings season is The takeout is nearing its end. is Clear: Two-years of increasing profits is over.
The bulk of the quarterly reports inThe per-share earnings for the companies in the S&P 500 Index were down 2.3% during the last three months of 2022, the first decline since the third quarter of 2020, according to data compiled by Bloomberg Intelligence.
Also notable: While most companies were still able to beat analysts’ forecasts, the share of those delivering negative surprises rose to the highest since the onset of the coronavirus pandemic. Und profit margins are shrinking, squeezed by inflation and an economic outlook that’s eroded the ability to pass on costs by raising prices.
The reports have underscored the wide disconnect between the weakening fundamentals and a stock market that’s rallied for much of this year on speculation that the Federal Reserve may be able to slow inflation without derailing the economy.
That focus on what’s ahead led stock investors to largely ignore disappointing results from some of the market’s biggest companies — such as Apple Inc. and Alphabet Inc. — while piling into stocks that topped expectations like DuPont de Nemours Inc.
“The lagged impacts of tighter monetary policy and fiscal policy are driving slowing sales growth, but we’re also looking past it to some extent,” Brad Neuman was Alger’s director for market strategy. “To be successful in near-term investing you have to be investing in companies that are going to have fundamental resilience in a difficult earnings environment.”
Here’s some of the key things we learned from fourth-quarter results:
Tech Earnings Misses
Slowing demand and weaker digital advertising market are affecting the largest technology companies. Meta Platforms Inc. and Alphabet, Amazon.com Inc. and Microsoft Corp. missed consensus earnings estimates by 8 percent, according to Savita Subramanian (Bank of America Corp. strategist), who said it was due to the economic shifts that have occurred since the end of the Pandemic-era stimulus. is “firmly behind us.”
Even so, most of the big tech stocks have rallied amid rising expectations for a soft economic landing, optimism on China’s reopening, and an investor rotation back into stocks that were hit the hardest last year.
Stock Bulls Bolstered by Job Cuts
Although the employment market remains resilient, it has been surprising to see how strong. in the face of the Fed’s rate hikes, many companies are moving rapidly to cut their workforces in In anticipation of a slowerdown, Meta, Zoom Video Communications Inc., and Walt Disney Co. were among them, who saw their stock prices rise as a result of the cost-cutting.
“That’s what investors have been clamoring for and there’s no better example than Meta,” said Alger’s Neuman. “Companies are listening to investors after a year-plus of investors saying they need to stop spending and that they prefer to invest in companies that have more near-term profits.”
Some job losses were not well-received by companies like News Corp. and Dell Technologies Inc. Match Group Inc. had sales that were below average.
A slowdown in the economy is on the rise
The shakeout from the Fed’s steadfast efforts to tame inflation showed up across earnings. Apple reports its earnings, worst holiday results in Consumers around the globe have slowed down their purchases of mobile devices and computers over many years.
Overall, sales growth for the S&P 500 companies slowed to 4.5% during the last three months of the year, less than half the pace of the previous three months and the slowest since the end of 2020, data compiled by BI show. From Whirlpool Corporation to Tyson Foods Inc., companies stated that they expect the impact of higher inflation and rising interest rates on their sales growth. over In the coming months things will improve in Back-half of the Year
Margin Pressures Linger
In all sectors, margins have been under constant pressure with businesses having to contend with an increasing labor supply and decreasing pricing power. Adjusted operating margins dropped to 14.3% among firms that are not financial, which is the lowest quarter-end margin. in Two years down from 14.9% in According to Wells Fargo, the third quarter.
Operating margins exceeded expectations in all cases. in more than a year with the majority of S&P 500 firms falling short, BI data show. Even though there has been a lot of job losses in big tech, it is clear that weaker demand coupled with low operating leverage suggests that things are not going well. “more margin pressure ahead,” according to BofA’s Subramanian.
Other in The Corporate Earnings
Feb. 10, Earnings Related Highlights
Semiconductor Manufacturing Industries International saw its shares drop in After the firm forecasted a drop in sequential sales, Friday was Friday for both Shanghai and Hong Kong. in 1Q Revenue
Toyota fell as the automaker’s quarterly results failed to outweigh some analysts’ concerns over supply-chain challenges.
Adidas plunged after the sportswear group warned that the fallout from the dispute with rapper and former partner Ye might lead to a €700 million operating loss in Analysts predict 2023 guidance is “horrible” It will be time-consuming to resolve.
L’Oreal fell, reversing initial gains, as some analysts looked past the French beauty company’s 4Q sales beat and 25% dividend hike to highlight expensive share valuations and a fall in Margins of operation The results follow a pessimistic outlook from rival Estée Lauder
Lyft crashed after Lyft gave a weaker forecast than it had expected. Analysts slashed their price targets on the stock and downgraded their recommendations, noting that the company’s effort to compete with rival Uber by lowering prices will squeeze margins
News Corp. plunged following the release of adjusted earnings per share (AEPS) for the second quarter, which was below the analyst average. The media company also announced that it would be reducing its workforce by 5%, or approximately 1,250 jobs, this year.
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