By Bill Peters

Earnings Watch: Apple, Amazon, and Microsoft helped S&P 500 gains beat expectations, but they mostly beat them — Disney, video game companies, and PayPal are all set to arrive in the coming days

Most of the first-quarter earnings storm is over, and overall results weren’t as bad as expected — thanks in large part to the country’s biggest tech companies: Apple Inc., Inc., and Microsoft.

The S&P 500 index has been broadly flat for the past few weeks as markets try to weather concerns about a fragile regional banking ecosystem and the Federal Reserve’s efforts to steer the economy through rising prices and avoiding the looming recession . But more of the companies that make up this index outperform.

“At this late stage of the 2023 first quarter earnings season, S&P 500 companies are posting their best performance relative to analyst expectations since the fourth quarter of 2021,” said John Butters, senior earnings analyst at FactSet, in a report Friday . “Both the number of companies reporting positive EPS surprises and the magnitude of those earnings surprises are above their 10-year average.”

The fourth quarter of 2021 was when markets started to turn sour, and Wall Street’s expectations for the first quarter of this year were muted. With 85% of S&P 500 companies reporting quarterly earnings to date, 79% of them have reported earnings per share that beat Wall Street expectations. That’s above the 10-year average of 73%.

The results to date represent a 2.2% drop in earnings for the quarter, according to the FactSet report. If they hold, they would mark the second straight quarter of falling earnings per share and the predicted recession in earnings. But that 2.2% figure is better than expectations for a 6.7% drop in earnings that Wall Street was expecting for the first quarter in late March.

Companies in the information technology sector were a major contributor to these better than expected first quarter results. Butters said that within the sector, results from Apple (AAPL), Microsoft (MSFT) and Intel (INTC) “contributed significantly” to mitigating the earnings decline in the sector.

“As a result, the composite earnings decline for the IT sector improved to -10.6% from -15.1% over the period,” Butters said.

Elsewhere, results from Amazon (AMZN), Ford Motor Co. (F) and General Motors Co. (GM) boosted results from consumer discretionary companies. Butters said the results from these companies helped increase the combined earnings growth rate for that segment — or actual results combined with estimated results for companies that have yet to report — from 33.8% to 53.6% increase.

The swings underscore the outsized impact of the tech giants on quarterly earnings and the index as a whole, as these companies look for firmer footing after the pandemic sparked an explosion in digital demand that later petered out.

Apple’s results benefited from a surprise surge in iPhone sales, while Microsoft’s bolder-than-expected forecast boosted the stock after strong sales gains in its cloud business. Intel still reported a massive loss, but overall results beat estimates. Amazon’s results also beat estimates. However, the stock suffered a setback after the CFO warned of a slowdown in cloud revenue.

This week in the result

For the coming week, 32 S&P 500 companies will report quarterly earnings, including one from the Dow Jones Industrial Average, Walt Disney Co. (DIS).

Video game companies are among the most prominent this week, with developer Electronic Arts Inc. (EA) following up on layoffs and disappointing results while executives decide whether to delay or pull the plug on some game releases. Also due this week are Roblox Corp. (RBLX) and monetization engines Unity Software Inc. (U) and AppLovin Corp. (APP).

Also on the agenda is Tyson Foods Inc. (TSN) as customers seek more relief in the grocery store from price increases that have helped boost the food industry’s sales and profits. Fast-food chains Wendy’s Co. (WEN) and Krispy Kreme Inc. (DNUT) are also reporting, along with some signs that restaurants may be reversing similar price increases, as well as other signs that restaurant prices haven’t fallen as much as that food prices.

Robinhood Markets Inc. (HOOD) and Beyond Meat Inc. (BYND) also report quarterly results. Charles Schwab Corp. (SCHW) will also report monthly activities in April.

The calls that you can enter in your calendar

Many media companies, a lot of hardship: For the first time in around 15 years, Hollywood authors are on strike and are threatening to shut down production. Digital media, once the envy of the industry, is facing layoffs and closures after years of aggressive growth. Executive commentary on earnings calls throughout the week — from companies including Disney, Endeavor Group Holdings Inc. (EDR), BuzzFeed Inc. (BZFD) and the New York Times Co. (NYT) — could address how the industry might look like ahead after steep cuts.

Those results will come as investors shift their focus from growth to profitability after a decade of tracking news traffic and streaming subscriptions. The explosion of digital demand during the pandemic has also raised more questions about how much the digital economy values ​​or devalues ​​the writers and reporters in its inception.

The results from BuzzFeed and the New York Times follow the closure of BuzzFeed News and the cancellation of Vice News Tonight, layoffs at outlets like Vice Media and Insider, and a widening financial divide between the largest and smaller news sites. While shares of BuzzFeed have plunged 88.4% over the past 12 months, shares of The New York Times are up 11.7% over the period.

While subscribers still care about the weirdness of election cycles, The New York Times consists of its eponymous news outlet, Wirecutter and The Athletic, as well as games and recipes. But even as consumers become more cautious about their spending, analysts at JPMorgan recently said they expect the company to hike prices.

“The decision to take the news award, we believe, reflects NYT’s confidence not only in the standalone value of its product – even in times of economic weakness – but also in its bundling strategy, as some subscribers may opt for all-access.” of relative value,” the analysts said in a March note.

Meanwhile, findings from Disney and Endeavor — Hollywood mogul Ari Emanuel’s entertainment conglomerate — could provide more details on how both companies are dealing with a potentially major work stoppage after the union representing TV and film writers reached an impasse with Survived studios went on strike Payment and protection for streaming and concerns about being replaced by AI. Disney CEO Robert Iger will have more issues to cover, including dueling lawsuits with the state of Florida and layoffs sweeping through the media giant.

The number to watch

PayPal and Consumer Spending: Payments platform PayPal Holdings Inc. (PYPL) reports quarterly earnings on Monday ahead of leadership changes at the top and limbo online spending. The results will be an indicator of overall consumer spending after e-commerce demand surged and then faded due to the pandemic.

Earnings Outlook: PayPal seems on track to “break a low bar.” Is that enough to help the stock?

PayPal could face more questions about its future during its conference call after Chief Executive Dan Schulman announced in February he plans to retire from the company later this year. Analysts at BofA said in a research note last month that more details on Schulman’s successor would be a key focus in the coming months after the stock, which has been a steady gainer for years, lost a good chunk of those gains in 2021. The analysts added that “we continue to believe that the development/delivery of engineered products must be a core competency of the new leader.”

This article has been updated to clarify that Charles Schwab will be reporting monthly activity this week.

-Bill Peters

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently of Dow Jones Newswires and The Wall Street Journal.


(ENDS) Dow Jones Newswires

05-08-23 1216ET

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