Surprising Corporate Profits Surpass Expectations This Earnings Season

Surprising Corporate Profits Surpass Expectations This Earnings Season

The fourth quarter of 2023 has turned out to be a pleasant surprise, surpassing all expectations in terms of corporate profits. Despite concerns surrounding macroeconomic conditions and their impact on consumer sentiment, this earnings season has seen companies perform exceptionally well. Various factors such as reduced expectations, effective cost controls, and lower input costs have contributed to these impressive results.

Many major players in the market, including Amazon, Meta, Apple, Chevron, ExxonMobil, Merck, and Bristol Myers Squibb, have reported significant earnings beats during this earnings season. Their strong performances have played a vital role in elevating the Q4 growth rate. Formerly known as Refinitiv, the LSEG now projects an almost 8% rise in earnings growth for this season. This forecast is a substantial improvement compared to the 4.7% growth expected three weeks ago, prior to the release of earnings reports by major banks.

Three sectors that have stood out with exceptional results are Energy, Healthcare, and Tech. Energy companies have exceeded earnings estimates in 90% of cases, with profits surpassing expectations by nearly 14%. Similarly, 85% of healthcare companies have beaten bottom-line estimates, posting earnings nearly 11% above expectations. Tech companies have also fared well, with 84% reporting earnings beats and exceeding expectations by over 5%.

The S&P 500 as a whole has experienced a stunning growth rate of 7.8% in earnings per share during Q4, outperforming the 7.5% growth seen in Q3 and setting a new record for the year. So far, 80% of S&P 500 companies have beaten earnings estimates, slightly higher than the usual trend. Earnings have come in over 6% above expectations, a solid performance although not as impressive as the 7% to 8% seen in the previous two quarters.

While the current earnings season has showcased exceptional results, it is important to keep some caveats in mind. Initially, expectations for S&P 500 fourth-quarter earnings projected an 11% year-over-year growth, which was significantly higher. Although the earnings picture has improved since the beginning of 2024, it still falls short of the initial projections made four months ago. Looking ahead, there is no positive momentum indicating further growth. First-quarter and full-year 2024 earnings estimates have actually been revised downward since January 1, as many companies exercise caution and issue conservative guidance.

This earnings season has been a pleasant surprise for corporations, with profitability exceeding expectations. Factors such as reduced expectations, effective cost controls, and lower input costs have contributed to this remarkable performance. However, cautious guidance from companies for the upcoming quarters tempers the optimism surrounding these results.


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