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Zacks Earnings Trends Highlights: Pepsi, Chipotle Mexican Grill, United Airlines and Microsoft

Zacks Equity Research
·5-min read

For Immediate Release

Chicago, IL – April 27, 2023 – Zacks Director of Research Sheraz Mian says, "Importantly, the tone and substance of management commentary continue to be favorable enough, helping keep negative estimate revisions in check."

Q1 Earnings: Good Enough, Not Great

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

  • The picture emerging from the Q1 earnings season continues to be one of resilience and stability, with companies not only beating estimates but also providing a good-enough outlook in an uncertain macro environment.

  • Through the morning session of April 26th, we have seen Q1 results from 164 S&P 500 members, or 32.8% of the index’s membership. Total Q1 earnings for these 164 index members are down -1.2% on +6.5% higher revenues, with 81.1% beating EPS estimates and 75% beating revenue estimates.

  • This is a better performance than we have seen from this group of 164 index members in other recent periods, both in terms of the growth rates as well as the beats percentages.

  • Earnings aren’t great, but they aren’t bad either, given the uncertain macro backdrop and weak sentiment. Importantly, the tone and substance of management commentary continue to be favorable enough, helping keep negative estimate revisions in check.

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Corporate profits continue to defy the skeptics, with an above-average proportion of the companies that have reported results not only beating estimates but also providing reassuring enough guidance for the current coming quarters.

We are not suggesting that earnings are great, because they are not. After all, earnings growth is on track to be negative for the second quarter in a row, with the trend of declining profits expected to continue in the current period.

That said, the fear of all-around downbeat guidance and management commentary still remains just that, a fear. As a result, we continue to elude the earnings cliff that the market bears have been telling us for a while.

Perhaps it’s only a question of time, with the day of reckoning only being deferred to the second half of the year. But, for now, at least, we can feel relieved that the earnings picture is good enough.

There are so many examples of bellwether companies showing that while growth has come down and conditions remain challenging, they are still profitably operating. Consumers are still spending, though there are signs of weakness at the margin.

Strong results from the likes of Pepsi PEP, Chipotle Mexican Grill CMG, United Airlines UAL and many others show that consumer demand is holding up despite these companies implementing pricing increases.

Then there is Microsoft MSFT, whose Q1 results and outlook for the current period, particularly in the cloud space, go some way towards easing fears about enterprise software spending.

Regular readers of this earnings note know that earnings expectations have been steadily coming down since last year in response to a moderating economic outlook as a result of tighter monetary conditions.

The Earnings Big Picture

As noted earlier, the current aggregate earnings total for the index approximates to an index ‘EPS’ of $213.48, down from $242.98 in mid-April, 2022.

The chart below tracks these index ‘EPS’ values since the start of 2022. Please note that these ‘EPS’ values are imputed approximations and have been previously published.

As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down almost -15% since mid-April 2022. Perhaps there will be some more downward adjustments to estimates over the coming weeks as companies report Q1 results and provide guidance for the coming quarters. But it is factually inaccurate to claim that 2023 earnings estimates have not fallen much.

The only scenario in which the almost -15% cut to 2023 earnings estimates may be called inadequate would be if the U.S. economy were headed toward a major economic downturn. The risk of such a ‘hard landing’ for the U.S. economy can’t be ruled out, but it is not our base case.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Microsoft Corporation (MSFT) : Free Stock Analysis Report

United Airlines Holdings Inc (UAL) : Free Stock Analysis Report

Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report

PepsiCo, Inc. (PEP) : Free Stock Analysis Report

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