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Friday, December 3, 2021

US Q-3 Earnings, Here They Come


US companies are preparing to report Q-3 earnings following a few months grappling with a US-China trade conflict undermining the business environment and an overall economy that has been showing signs of slowing.

Among S&P 500 (SPX) earnings for the July-September frame look set to mark the weakest performance in 3 years, with respect to Y-Y Quarterly changes.

Analysts are forecasting a 3.2% decline in earnings for the Q from a year ago, based on IBES data from Refinitiv, although given the historic trend that many companies’ earnings will surpass analyst estimates, the Q could end in the Green.

Investors may start to think that the worst of the earnings comparisons are behind us, and if the consensus emerges that we’ve passed the earnings trough in terms of year-over-year growth, that would be a positive for the market,” said SVP at BB&T Wealth Management.

Sector-wise, a rough Quarter is expected for technology companies .SPLRCT, whose shares have led the market’s ascent this year but overall are seen posting a 7.6% drop in Q-3 earnings according to Refinitiv.

Materials .SPLRCM and energy .SPNY, 2 cyclical sectors that are particularly sensitive to the overall economy as well as the China trade dispute, also are forecasted to post big year-over-year declines in earnings. And the big US banks are also expected to report a slight earnings dip.

“Negative S&P 500 EPS growth in Q-3 will be driven by sectors with the highest international revenue exposure,” the Chief US equity strategist at Goldman Sachs, said in a report.

Uncertainty about the economy and trade situation means that analysts are expecting companies will be cautious with their big investments in buildings and equipment.

Capital expenditures are expected to have increased just 2.8% in Q-3 from a year ago, which would be the lowest since Q-2 of Y 2017, when CAPEX declined slightly, according to data compiled by Refinitiv.

A Key issue that may confront large US companies that derive much of their revenue from abroad is the stronger USD at the end of Q-3 Y 2018, the Buck strengthened more than 6% Vs EUR through the end of Q-3 this year, a potential pressure point as US companies convert foreign earnings into the US currency.

Data from cloud treasury and finance firm Kyriba found that North American companies reported a $23.39-B collective negative impact in Q-1 related to currency, the highest mark since Q-4 of Y 2015.

Have a terrific weekend

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