Looking Ahead To Q1 Earnings: What's Next?

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Here are the key points:

  • Total S&P 500 earnings for the first quarter of 2024 are expected to be up +2.4% from the same period last year on +3.5% higher revenues. This follows the +6.7% earnings growth on +3.8% higher revenues in 2023 Q4.
  • As was the case in the preceding two quarters, the Tech sector remains a key growth driver in 2024 Q1. Had it not been for the robust Tech sector earnings growth, total earnings for the rest of the index would be modestly in negative territory.
  • The 2023 Q4 earnings season has not officially ended, as 7 S&P 500 member companies have yet to report quarterly results. For the 493 index members that have already reported Q4 results, total earnings are up +6.9% from the same period last year on +3.8% higher revenues, with 75.3% beating EPS estimates and 64.1% beating revenue estimates.
  • For 2024 Q1, ‘Magnificent 7’ earnings are expected to increase +33.2% on +13.4% higher revenues. Excluding the Mag 7 contribution, 2024 Q1 earnings for the rest of the index would be down -3.3% from the year-earlier period (vs. +2.4% growth otherwise).

As we gear up for the March-quarter reporting cycle, whose early results will start coming out in the next few days, it is useful to summarize what we learned in the Q4 earnings season (only seven companies are still to report Q4 results at this stage).

While no major surprises emerged from the Q4 earnings season, the earnings and revenue growth pace showed modest acceleration from recent periods, and the tone and substance of management guidance remained largely favorable.

The Tech sector was a material contributor to the aggregate growth picture in Q4. The sector struggled in the post-COVID period, resuming its traditional growth-driver status just in 2023 Q3. This came after six consecutive quarters of underwhelming Tech sector earnings growth, starting in 2022 Q1 when the sector was a drag on the aggregate growth picture.

Earnings growth for the S&P 500 index would have been modestly in negative territory on an ex-Tech basis.

The ‘Magnificent 7’ stocks – Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), Meta (META), Nvidia (NVDA) & Tesla (TSLA) – were again significant contributors to growth in 2023 Q4. Please note that two of the ‘Mag 7’ stocks are not part of the Zacks Tech sector; these two are Amazon (part of the Zacks Retail sector) and Tesla (part of the Zacks Autos sector).

The chart below shows the quarterly earnings and revenue growth picture for the S&P 500 index.

Zacks Investment Research

Image Source: Zacks Investment Research

The chart below shows the aggregate growth picture excluding the Magnificent 7 stocks.

Zacks Investment Research

Image Source: Zacks Investment Research

Below, we show the overall earnings picture for the S&P 500 index on an annual basis.

Zacks Investment Research

Image Source: Zacks Investment Research

Given the expected moderation in the U.S. economy’s growth trajectory due to the cumulative effects of Fed tightening, these estimates likely need to come down. But the +4.9% revenue growth expectation is hardly aggressive, considering that the U.S. economy produced a nominal GDP growth rate in excess of +6% last year.

The rest of the 2024 earnings growth is coming from margin expansion, with 2024 net margins for the index going up to +12.4% from last year’s 11.7%. Embedded in this margin expectation is the view that the inflation cycle has run its course, with easing cost pressures letting net margins return to the 2022 level.

We don’t see this margin (or revenue) outlook as unreasonable or out-of-sync with the economic ground reality.

More By This Author:

Earnings Season: Retail Sector In Focus
Retail Earnings Loom: What's In 'Store'?
Handicapping The Earnings Outlook

Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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