The corporate earnings season is leaving a bittersweet taste in the market with 25% of companies having submitted results. According to an analysis by Bank of America, companies are marking a bad statistic: for the first time in 10 years earnings per share decreases. These accounts have developed in an uncertain economic environment and dragging down the rate hikes of central banks.
Specifically, so far only 46% of companies have exceeded earnings per share expectations, notably below the 63% that beat them in the first quarter of this year. In fact, according to the bank’s analysts, there has not been such a low rate of surprise since the end of 2019. With these disappointments, the earnings per share presented remain 0.4% below the expected; which represents the worst accumulated data since the third quarter of 2023.
“The earnings season is headed for the first negative earnings per share growth in three years: the second-quarter year-over-year growth rate is 1%; below the 3% that was expected for companies that have so far presented results, “they point out.
By magnitude, according to Bank of America calculations, in the case of sales only 45% of European companies have exceeded forecasts; a rate that yields 19 percentage points less than in the first quarter of the year.
The main support of earnings per share within the Stoxx 600 index of the EPS is being the financial sector, which is seeing a benefit, as shown by the results of the Spanish banks that are being published for the moment. Without them, the rate of decline would be 11%. For the market as a whole, according to Bank of America, a 16% drop in earnings per share of the Stoxx 600 is expected. If confirmed, it would be the most fragile quarter since the first three months of 2020; when the coronavirus pandemic exploded in Europe.
Macro data doesn’t help improve expectations
Not only are companies disappointing, but the evolution of the economy itself is causing revisions for the worse. In this case, it has been the publication of the PMI indicators that have caused a revision to the worst of the estimates. Thus, the forecasts for the 12-month Stoxx 600 have decreased by four weeks over the last 3 months, leaving them 2% below the maximum of the cycle and taking the expected growth of earnings per share for 2023 into negative territory; with a decrease of -0.4%.
This week’s anticipated weak Eurozone and US PMI indices imply a decline in the overall PMI, from 53 points in June to 51 in July. According to Bank of America, these forecasts of exhaustion of global growth, as the impact of the tight monetary policies of the Fed and the ECB is felt, cause the possibility of a further 15% decline in the 12-month earnings per share of the Stoxx 600 index for the second quarter of next year.