Negative surprises will pop up everywhere during earnings season
We have been arguing for quite some time that the Q3 earnings season will surprise to the downside. The recent string of worse than expected results from Nike and H&M, and now also AMD disappointing last night and Samsung this morning missing estimates on Q3 operating income by 12%, are clear signs of what awaits investors. The energy and mining sectors were among the strong contributors in Q2 holding up the aggregate earnings figures, but Shell’s CEO said yesterday that Q3 earnings will be lower q/q due to lower profitability in its refining and chemicals businesses.
The list below shows all the most important earnings releases next week. Consumer oriented companies such as PepsiCo, Walgreens Boots, and Delta Air Lines are important earnings to watch for updating our information picture on the consumer amid the cost-of-living crisis. On Friday, several large US financial institutions will report earnings with our focus on JPMorgan Chase, Citigroup, and Wells Fargo. The key things to watch for in US bank results are their ability to increase their net interest margin and the credit provisions.
- Wednesday: PepsiCo
- Thursday: Progressive, Fast Retailing, Tryg, Walgreens Boots Alliance, Fastanal, BlackRock, Delta Air Lines, Domino’s Pizza
- Friday: Shanghai Putailai New Energy, YTO Express Group, PNC Financial Services, JPMorgan Chase, Morgan Stanley, Citigroup, UnitedHealth Group, Wells Fargo, US Bancorp, First Republic Bank
Analysts are too optimistic
In our view the bad Q3 earnings season will be a function of both weakening numbers from companies but also unrealistic expectations. The chart below shows the realized quarterly earnings per share for S&P 500 and here we already observe that realized Q3 earnings are behind estimates and that estimates are suggesting strong earnings growth into Q4. This seems very unrealistic to us given the wage pressures that CEOs are complaining about and highlighting as the biggest short-term risk to profitability.