NORTH America’s largest companies are on track to post their best quarterly earnings relative to expectations in at least two years, as they have 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 per cent higher than expected, according to data compiled by Bloomberg. About 79 per cent have beaten profit expectations, compared to 76 per cent 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.
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 at Thursday (May 9) morning, according to a note from Evercore ISI chief equity and quantitative strategist Julian Emanuel.
“Prudent managements are going to remain prudent,” Emanuel said. “There’s no reason to think that corporate America won’t continue to err on the side of caution, because frankly, it has worked.”
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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
