Commencing the Quarter – Q4’22

This week officially commences Q4’22 Earnings Season. Yesterday, we published our 53rd issue of our Inside The Buy-Side® Earnings Primer®.

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

• Margins/expense management (44%)
• Capital allocation priorities (37%)
• Demand trends (35%)
• Inflation/pricing power (32%)
• Labor shortages/costs (29%)

And on the topic of capital allocation, while investors overwhelmingly favor debt paydown and conserving cash, 36% prefer reinvestment, up from 28% QoQ. Notably, only 18% now prefer buybacks, down from 31% QoQ, with 65% favoring moderation or cessation of share repurchase activity.

As we do every quarter, we analyzed the earnings communication trends of 30 companies reporting between December 14, 2022 and January 9, 2023 to identify important themes and precedents. As off-cycle earnings prints begin to trickle in, corporate messaging continues to center on near-term uncertainty, with executives expressing “caution” about 2023. Inflation appears to have peaked, though executives warn against declaring victory just yet, and pricing actions are now being “evaluated” for many companies rather than outright increased.

Demand represents a mixed bag across sectors and industries with more executives seeing weakness while also highlighting improved supply chains. For those in the industrials and materials spaces, executives report reinvesting in long-term growth prospects and while M&A aspirations are notably pronounced, valuations remain high. As has been the case over the past year, labor remains a confounding variable, and many companies continue to experience the effects of a tight employee environment.