The largest US companies are expected to report a slowdown in earnings growth when they report first-quarter results in the coming weeks, as raging inflation and the war in Ukraine weigh on earnings.
Earnings reports from companies included in the S&P 500 index will pick up steam over the next two weeks, with groups accounting for 70 percent of the blue-chip index’s market value reporting through the end of April, according to Goldman Sachs compiled data.
Analysts expect the S&P 500-listed groups to report compound annual earnings-per-share growth of 5.2 percent year over year, taking into account companies that have already reported and estimates for those that have not , as FactSet data shows.
That would mark a sharp decline from the 32 percent growth rate seen in the fourth quarter of 2021 and mark the weakest pace since the last three months of 2020.
Revenues for S&P 500 companies are expected to rise 10.9 percent, led by the energy, materials and real estate sectors. However, Goldman noted that profit margins are expected to fall 0.05 percentage point to 11.8 percent.
“If expectations are met, [the] The first quarter of 2022 would be the only quarter in the last 30 years with declining net margins on double-digit revenue growth, excluding 2008 and the fourth quarter of 2011,” the Wall Street Bank said.
“Similar to the current macro environment, these periods have been characterized by relatively high inflation and a sharp rise in crude oil prices.”
Inflation is expected to be a headwind for businesses. Of the first 26 S&P 500 companies to report results, FactSet said nearly two-thirds cited labor costs and shortages as a drag on the results.
Pandemic-related spending and supply chain disruptions were also noted as negative contributors.
The energy sector is expected to lead the S&P 500 as rising oil prices boost sales and profits. The industry is expected to report earnings growth of 255 percent, while revenue is expected to rise nearly 45 percent year-on-year, helped by a sharp rise in crude oil prices.
Oil prices have been volatile following the February 24 Russian invasion of Ukraine.
Brent crude, the international oil benchmark, rose to nearly $140 a barrel last month, only to give up some of those gains after the US announced it would release emergency reserves. Further Covid-19 lockdowns in China have raised the prospect of weaker oil demand.
US banks opened the reporting season for companies last week. JPMorgan Chase, Citigroup, Goldman Sachs and Morgan Stanley all reported earnings declines as business activity slowed and lenders increased their provisions for potential loan losses due to economic uncertainty caused by the conflict in Eastern Europe.