Netflix, Inc. NFLX shares jumped nearly 8.5% on Friday before settling at their highest level since April 19, 2022, when shares plunged after the company reported its first loss in net paid subscriber adds in a decade. Although the streaming giant delighted Wall Street with strong paid subscriber growth, earnings expectations for S&P 500 companies, in general, have tempered in the past week.
How Earnings Season Is Shaping Up:
Profit Trends: Earnings of S&P 500 companies are expected to decline 4.6% year-over-year in the fourth quarter, down from the 3.9% forecast in the week ended Jan. 13, financial data provider FactSet said in its weekly “Earnings Insight” report. This would mark the first earnings drop since the third quarter of 2020 when profit fell 5.7%.
That said, a majority of companies reported upside surprises to both top and bottom-line expectations. About 67% of S&P 500 companies reported better-than-expected earnings per share and 64% announced above-consensus revenue, FactSet said.
The average EPS upside is 3.3%, below the 5-year average of 8.6% and the 10-year average of 6.4%. Consumer discretionary, industrial and material sectors reported the largest positive earnings surprises, while the communication services sector chimed in with the largest negative surprises. Netflix, despite its roughly in-line revenue and better-than-expected net paid adds, reported a gross EPS miss. As opposed to expectations of $0.55 per share, the company earned $0.12 per share.
Margin Contraction Continues: The blended net profit margin for the S&P 500 companies is 11.4%, lower than the 11.9% reported for the third quarter and 12.4% for the year-ago quarter, FactSet said. This would mark the sixth straight quarter of sequential declines in net profit margin.
The margin contraction should not come as a surprise as consumer price inflation, although showing a deceleration, ruled high through the December quarter. The annual rate of core consumer price inflation was at 7.7% in October, 7.1% in November and 6.5% in December, according to data from the Bureau Of Labor Statistics.
Outlook Muted: Out of the seven S&P 500 companies issuing EPS guidance for the first quarter, five guided EPS above consensus, while the remaining two announced below-consensus guidance.
Looking ahead, 93 S&P 500 companies are scheduled to report their quarterly results in the unfolding week, including 12 Dow Jones companies, FactSet said.
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The key earnings reports to watch out for in the new week are:
Monday
1. Baker Hughes Company BKR (7 a.m. EST)
EPS Estimate: $0.40 Vs. $0.25 Year-Ago
Revenue Estimate: $6.06 billion Vs. $5.52 billion Last Year
Tuesday
1. General Electric Co. GE (before the market open)
EPS Estimate: $1.13 Vs. $0.92 Year-Ago
Revenue Estimate: $21.59 billion Vs. $23.27 billion Last Year
Given the recent spin-off of the company’s healthcare business into a separate publicly traded company, investors are likely to be interested in knowing the strategic direction going forward.
2. Johnson & Johnson JNJ (before the market open)
EPS Estimate: $2.23 Vs. $2.13 Year-Ago
Revenue Estimate: $23.95 billion Vs. $24.80 billion Last Year
Ahead of the quarterly results, SVB Leerink analyst David Risinger reduced his 2023 estimates, citing cautious commentary by CEO Joaquin Duato at a conference. He highlighted the accelerating Remicade erosion curve, loss of exclusivity for prostate cancer drug Zytiga in Europe as well as injectable antipsychotics and the overstated COVID-19 vaccine sales expectations for 2023 as areas of concern.
3. 3M Co. MMM (before the market open)
EPS Estimate: $2.36 Vs. $2.31 Year-Ago
Revenue Estimate: $8.04 billion Vs. $8.61 billion Last Year
4. Travelers Companies, Inc. TRV (before the market open)
EPS Estimate: $0.40 Vs. $0.25 Year-Ago
Revenue Estimate: $6.06 billion Vs. $5.52 billion Last Year
5. Verizon Communications, Inc. VZ (before the market open)
EPS Estimate: $1.19 Vs. $1.31 Year-Ago
Revenue Estimate: $35.14 billion Vs. $34.07 billion Last Year
6. Texas Instruments, Inc. TXN (after the close)
EPS Estimate: $1.98 Vs. $2.27 Year-Ago
Revenue Estimate: $4.62 billion Vs. $4.83 billion Last Year
Oppenheimer analyst Rick Schafer expects in-line quarterly results, but sees risk to first-quarter estimates. “Demand weakness early last summer in personal electronics spread to broader markets including industrial beginning last Q,” he added.
7. Microsoft Corp. MSFT (after the close)
EPS Estimate: $2.30 Vs. $2.48 Year-Ago
Revenue Estimate: $52.96 billion Vs. $51.73 billion Last Year
Other notable companies reporting on Tuesday include railroad operators Union Pacific Corp. UNP and Canadian National Railway Company CNI, homebuilder D.R. Horton, Inc. DHI, defense contractors Lockheed Martin Corp. LMT and Raytheon Technologies Corp.RTX and oilfield services company Halliburton Company HAL.
Wednesday
1. Boeing Company BA (before the market open)
EPS Estimate: $0.25 Vs. (-$7.69) Year-Ago
Revenue Estimate: $20.07 billion Vs. $14.79 billion Last Year
2. AT&T, Inc. T (before the market open)
EPS Estimate: $0.57 Vs. $0.78 Year-Ago
Revenue Estimate: $31.39 billion Vs. $40.96 billion Last Year
3. Tesla, Inc. TSLA (after the close)
EPS Estimate: $1.13 Vs. $0.85 Year-Ago
Revenue Estimate: $24.16 billion Vs. $17.72 billion Last Year
Tesla’s fourth-quarter deliveries released in early January came in below expectations, and the multiple price cuts the company announced in China, the U.S. and Europe during the quarter may have weighed on margins. Following the fourth-quarter deliveries report, Goldman Sachs analyst Mark Delaney reduced his 2022 EPS estimate from $3.60 to $3.48, blaming the action on the deliveries miss, and lower ASPs and gross margin assumption. The focus now shifts to what Elon Musk and his team have to say on the earnings call.
4. International Business Machines Corp. IBM (after the close)
EPS Estimate: $3.59 Vs. $3.35 Year-Ago
Revenue Estimate: $16.37 billion Vs. $16.70 billion Last Year
Also reporting on Wednesday would be defense contractor General Dynamics Corp. GD, railroad operators CSX Corp. CSX and Norfolk Southern Corp. NSC, chip-equipment makers Lam Research Corp. LRCX and ASML Holdings N.V. ASML, data storage solutions company Seagate Technology Holding plc STX, medical devices manufacturer Abbott Labs, Inc.ABT and copper miner Freeport McMoRan, Inc. FCX.
Thursday
1. Intel Corp. INTC (after the close)
EPS Estimate: $0.20 Vs. $1.09 Year-Ago
Revenue Estimate: $14.48 billion Vs. $19.53 billion Last Year
Defense contractor Northrop Grumman Corp. NOC, Payment processors Mastercard, Inc. MA and Visa, Inc. V, diversified media company Comcast Corp. CMCSA, chip-equipment maker KLA Corp. KLAC, airlines American Airlines Group, Inc. AAL, Southwest Airlines Company LUV, JetBlue Airways Corp. JBLU and Alaska Air Group, Inc. ALK and Xerox Holding Corp. XRX are among the other notable companies reporting on Thursday.
Friday
2. American Express Company AXP (before the market open)
EPS Estimate: $2.22 Vs. $2.18 Year-Ago
Revenue Estimate: $14.22 billion Vs. $12.14 billion Last Year
3. Chevron Corp. CVX (before the market open)
EPS Estimate: $4.41 Vs. $2.56 Year-Ago
Revenue Estimate: $54.69 billion Vs. $48.13 billion Last Year
4. Colgate-Palmolive Co. CL (before the market open)
EPS Estimate: $0.80 Vs. $0.76 Year-Ago
Revenue Estimate: $1.85 billion Vs. $1.53 billion Last Year
Read next: S&P 500 Makes Weekly Gain As Q4 Earnings Season Kicks Off: What's Next For The Markets
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