First-Quarter 2023 Earnings Season Recap and Commentary

Chart of the Month
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

Photo Credit: Andrew Dawes, Unsplash

More than 90% of S&P 500 companies have reported Q1 2023 earnings, with results exceeding expectations. The chart below, "Percent of S&P 500 Companies Beating EPS Estimates," shows 78% of S&P 500 companies reported Q1 earnings that surpassed their estimates, up from 68% in Q4 2022 and above the 20-year average of 67%. The above-average number of earnings beats is encouraging, but there is a potential explanation.

Percent of S&P 500 Companies Beating EPS Estimates

Percent of S&P 500 Companies Beating EPS Estimates

The "Path of YTD Revisions to Q1 2023 Earnings" chart shows that first-quarter earnings estimates for the S&P 500, Nasdaq 100, and Russell 2000 were revised lower throughout Q1. Those downward revisions may have set the bar too low, leading to more companies beating expectations. Estimates were revised higher over the past month as more companies reported first-quarter results. The upward revisions and the 78% beat rate suggest Wall Street analysts were too pessimistic.

Path of YTD Revisions to Q1 2023 Earnings

Path of YTD Revisions to Q1 2023 Earnings

Companies are also providing additional context on earnings calls. Here’s what some well-known companies are saying about the current economic environment:

  • UPS (Logistics): “… volume was higher than we expected in January, close to our plan in February, and then moved significantly lower than our plan in March…”

  • Bank of America (Diversified Bank): “Consumers’ financial positions generally remain healthy. They are employed with generally higher wages, continue to have strong account balances, and have good access to credit.”

  • Caterpillar (Machinery): “Backlog ended the quarter at $30.4 billion, flat relative to the fourth quarter of 2022.”

  • Chipotle Mexican Grill (Restaurant): “… we’re seeing new customers come in and we’re also seeing existing customers increase their frequency.”

Numerous companies report that the U.S. consumer is financially healthy, such as strong account balances at Bank of America and more meals at Chipotle. This activity is positive because the consumer historically accounts for 70 percent of U.S. economic activity. However, commentary from other companies suggests activity may be peaking. UPS’s declining package volumes suggest consumer spending fell as the quarter progressed, while Caterpillar’s flat backlog indicates construction, mining, and drilling activity remains elevated but may be peaking. The mixed messages explain why analysts were cautious entering earnings season. We believe earnings will remain in focus this year as the market deciphers how higher interest rates will impact the economy.

Our Insights

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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