Companies and the Terrible, Horrible, No Good, Very Bad Earnings Season

livemint.com:

When companies were raising prices faster than their costs were going up, it was called greedflation. But with profit margins now collapsing, it is beginning to look as though businesses are having a sudden fit of generosity. Companies are now starting to report their second-quarter results, and from the looks of it, this earnings season will be remarkably bad.

Analyst estimates now point to earnings per share at companies in the S&P 500 falling by 8.1% from a year earlier, according to Refinitiv. It probably won’t end up that bad, because estimates are almost always too pessimistic by the time earnings season gets under way, but a decline still seems likely. And don’t forget that earnings per share is typically flattered by the retiring of shares through buybacks and the like.

Analysts estimate S&P 500 net income fell by 11.4%. Meanwhile, revenues are estimated to have fallen by a slimmer 0.9%. This points to a decline in profit margins.

Before getting to that, though, let’s reflect on how bad the revenue figure is. The economy is growing slowly, but it is still growing, and while inflation is cooling, it remains high. U.S.

nominal gross domestic product—GDP not adjusted for inflation—looks as though it was around 5% higher in the second quarter than it was a year earlier, economists’ estimates suggest. Global nominal GDP has been growing too. So S&P 500 sales are lagging behind the economy.

Some of this is an energy story—fuel prices are down a lot from last year, and that is hitting energy companies. But excluding energy companies, S&P 500 revenues are expected to show an increase of just 2.8%. Moreover, excluding energy items, growth in nominal GDP would be stronger too.