Corporate Earnings: Energy profits booming

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Corporate earnings season is in full swing. As of last Friday (3 Feb), 50% of companies in the S&P 500 Index (US) have reported, with 20% of Stoxx600 (Europe) and 30% of companies in the Topix index (Japan)[1]. 

So far US companies are reporting revenues 4% higher than the same period last year. Corporate profitability did not fare so well. Earnings per share, a measure of net income divided by the number of shares a company has outstanding, fell 5%. If earnings per share are down 5% after all the companies reported it will be the first decline since 2020.  

Thanks to higher oil and gas prices, energy companies are doing very well compared to last year. So far they have reported 15% revenue growth with earnings per share almost 70% higher. Technology companies on the other hand have faced a more difficult time. Of the technology companies that have reported so far, revenues are 4% lower than last year. Earnings per share fared even worse, down more than 20%. 

It’s still too early in the European reporting season to make any significant conclusions but so far trends appear broadly similar to what we’re seeing in the US. Strong performance in energy and industrials and somewhat weaker trends in technology related areas. 

In Japan, only a third of companies have reported so far. Revenues are 16% higher than last year with earnings per share up 5%. Revenues and earnings at Japanese exporters will have been boosted by a weaker Yen. The Yen weakened from 114/US dollar in the last quarter of 2021 to 141/US dollar during the last quarter of 2022[2].

As mentioned above, tech companies are having a difficult time. Apple reported its first quarterly decline in revenues in more than 3 years. Revenues fell more than 5% compared to the same quarter last year. They reported declines for the iPhone, Mac, Wearables and Home & Accessories segments. The strong dollar played a big role in the revenue decline. According to the company, stripping out the effects of the strong dollar, revenues would have increased around 3%[3].

Apple said that iPhone sales are expected to accelerate in the first quarter this year but will likely still be below last year's numbers. Tim Cook, the CEO of Apple, was more downbeat on the outlook for Apple Mac computers however. He said trends “will be a little rough in the short term”. Apple is clearly not immune to weak trends in the global PC market. In the final quarter of 2022, global PC sales are down more than 30% compared to last year[4]. 

There were some bright spots in the Apple numbers however. Revenues for Apple Services like Apple Music and Apple TV grew thanks to recent price increases. Apple also reported they now have more than 2bn customers across their device range, growing more than 8% compared to a year ago. And so far Apple is the only large technology company that has not announced any employee layoffs.

References

[1] https://insight.factset.com/sp-500-earnings-season-update-february-3-2023

[2] https://www.bbc.co.uk/news/business-63335371

[3] https://www.apple.com/newsroom/2023/02/apple-reports-first-quarter-results/

[4] https://telecoms.com/519381/global-pc-shipments-slump-in-q4-2022/

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