It is earnings call time, and all publicly traded companies are reporting their second-quarter
earnings. One of the most interesting things that we at Advantexe do for our clients is to conduct a Business Acumen training program called, “Decoding the Earnings Call” where we review their real earnings call and then “decode” it for employees who are not financial experts and don’t understand all of the Wall Street lingo.
I will share in full transparency that I was dreading the sessions scheduled for August that I have with more than 10 of our best clients because I really thought earnings were going to be poor and reflect the state of the economy which is in a recession. However, we have all been pleasantly surprised by the recent results and I am feeling much better about the prospects for a strong second half of the year.
According to data just shared by the Institutional Brokers’ Estimate System (IBES) by Refinitive, US companies are reporting mostly positive news surprising investors who have been preparing for poor results on the economy and from businesses. By way of example, Proctor & Gamble just reported the best quarterly results they’ve had in 17 years despite the recession. P&G is a great barometer of future economic data.
As of today, we are more than 50% into the Q2 reporting period and S&P 500 company earnings have increased 8.1% over the same time period a year ago. What’s interesting is the experts estimated the increase would be 5.6% estimate at the start of July. Based on this positive news, we now see that so far 78% of earnings reports are beating Wall Street’s expectations. Profit growth estimates for the third and fourth quarters have come down but remain sharply positive. S&P 500 earnings for all of 2022 are now forecast to grow 8.1% versus a 9.5% estimated in July.
On an even more positive note, it’s interesting to observe that many investors were worried that with inflation and high-interest rates causing the recession, all of the earnings estimates were way too high. Now that we have data, that is clearly not the case, and I don’t think we realize how important this good news is for the economy and businesses for the rest of the year.
If you follow stock prices and not just the earnings, it was clear there was a lot of nervousness in February and March due to the uncertainties of the supply chain issues, the war in Ukraine, inflation, and the overheated job markets causing a significant selloff and dropping of prices and values. A lot of people couldn’t even look at their 401ks as they plummeted in some cases by 50%. However, over the past two weeks, stock values have gone up as estimates of positive earnings news started to hit the markets.
So, where do we go from here and what does it mean for businesses? I think this is all great news and will have major implications for businesses. The biggest impact is that instead of businesses cutting their way to profitability they will continue to invest in:
- People – We will see more demand for training programs. If the second half of the year is an indicator, the new “blended model” of learning where you start virtually and integrate some in-person training into the learning journey will become more mainstream.
- R&D – We will see continued investments in innovation and new products; especially innovations that lead to more global sustainability like electronic cars, airplanes, and other modes of transportation.
- Digital Transformation – We have only just begun, and it feels like this positive news will encourage businesses to continue their investments in digital and re-invent themselves.
