This week officially commences Q1’23 Earnings Season!

Yesterday, we published our 54th issue of our Inside The Buy-Side^® Earnings Primer^®

According to our survey of institutional investors and analysts globally, top areas to address on earnings calls this quarter include:

• Margins, Expense Management (52%)
• Inflation, Pricing Power (41%)
• NEW: Liquidity, Funding (39%)
• Labor Shortages, Related Costs (28%)
• Demand (23%)

As we do every quarter, we analyzed the recent earnings communication trends of 30 off-cycle companies.

As earnings prints begin to hit the airwaves, management outlooks, in general, appear to be neutral to positive, in line with our Earnings Primer® findings, where we identified a more optimistic executive tone QoQ. Most are anticipating a strong 2H, owing in part to signs of moderating inflation, improving working capital levels, and select regional economic strength, particularly in China.

Still, focus remains on expense management paired with appropriately “balancing” pricing actions with economic reality. The recent banking crisis placed an additional cloud of uncertainty over the near-term, with many executives outlining their exposures in prepared remarks as well as fielding questions on potential knock-on effects within Q&A. Furthermore, the health of the consumer continues to be tested among certain industries.

To that end, companies report inventory levels are normalizing, with the next few quarters serving as a “realignment” phase with the current demand environment. Moreover, hiring freezes and/or layoff communications continue to permeate earnings calls.

Key Themes:

• Outlook – While Many Fiscal Year Companies Portend Back-half Strength, Cautious Optimism is Tempered by Uncertainty Regarding Near-term Consumer Strength and Banking Crisis Ripple Effects
• Inflation and Pricing Power – Magnitude of Inflation Appears to Be Moderating, and, along with it, Pricing Power; ‘Ensuring Pricing is Appropriately Balanced’ is a Key Theme this Quarter
• Inventory – Clearing Out and Recalibrating amid Customer and End Consumer Cautiousness Resulting in Improved Working Capital
• Cost Optimizations – With Margins Squarely in Focus, Some Point to the Success of Digital Optimization and Innovation, While Others Resort to Hiring Freezes and Layoffs
• Capital Allocation – Spending Signals Suggest Many Companies, Particularly Industrials, are Prioritizing Strategic Investments, Primarily Growth Capex, with Several Reiterating an Openness toward M&A
• Regional Trends – While Reservations Certainly Exist, China and Europe Show Promising Signs of Economic Recovery, with the Former Being Attributed to Reopening and Favorable YoY Comps

Stay tuned for next week when we release our Q1’23 Industrial Sentiment Survey^®.