North America’s largest companies are on track to post their best quarterly earnings relative to expectations in at least two years, as they’ve worked to keep costs down over fears of a recession.
The 459 companies in the S&P 500 that have reported this
quarter have posted profits on average 8.4% higher than expected, according to
data compiled by Bloomberg. About 79% have beaten profit expectations, compared
to 76% last quarter.
The anticipation of a recession may be contributing to the
notable outperformance. Companies are shoring up their bottom line, cutting
costs and stockpiling cash to stave off the impacts of an economic slowdown.
Earnings revisions also dipped heading into the first quarter, leaving room for
more upside potential.
Companies have been “trying to do more with less,” Lombard
Odier Asset Management Head of Macro Research Florian Ielpo said in an
interview.
The average size of the S&P 500’s so-called double miss
— a company reporting both revenue and earnings below expectations — was also
lower than average as of Thursday morning, according to a note from Evercore
ISI Chief Equity and Quantitative Strategist Julian Emanuel.
“Prudent managements are going to remain prudent,” Emanuel
said in an interview. “There’s no reason to think that corporate America won’t
continue to err on the side of caution, because frankly it has worked.”
Conversely, revenues are coming in close to expectations as
a stable macroeconomic environment makes it easier for analysts to predict
sales and for companies to plan.
Mentions of “recession” on earnings and conference calls
among S&P 500 companies hit the lowest level since the first quarter of
2022, according to data compiled by Bloomberg.
As a result, the surprisingly good profits have analysts
becoming more optimistic and boosting their earnings forecasts at the fastest
rate in two years. – Bloomberg