Commencing the Quarter: Q4’23

This week officially commences Q4’23 Earnings Season!

Yesterday, we published our 57th issue of our Inside The Buy-Side^® Earnings Primer^®, where we captured investor perspectives on Q4 and full year 2023 earnings expectations, views on the macro and leading reasons for optimism, sector sentiment, and more.

As we always do in conjunction with our survey, we analyzed the earnings communication trends of 30 off-cycle companies over the last several weeks to identify important themes and precedence.

In line with our Earnings Primer^® findings, earnings reports thus far appear to have a smidge of optimism despite the noise we’ve been hearing from the news cycle. While not “signing up for anything heroic,” as one executive aptly put it, outlooks for the year paint a picture of generally improving macro conditions, albeit several notable overhangs still exist.

The consumer continues to exhibit “value-seeking behavior”, but commentary suggests they remain “stronger than anticipated.” Furthermore, while new developments in the Red Sea are already impacting shipping routes and increasing costs, and the latest inflation reading indicates an unexpected uptick in December, many point to “moderating” levels of inflation across the board.

Some signs of optimism, strategic positioning relative to the AI megatrend has become more substantive on recent calls, and executive commentary regarding M&A sounded noticeably warmer this period. However, financial discipline still reigns supreme, as debt paydown remains a clear priority for both executives and investors in our latest survey.

Lastly, international commentary on Europe and China is squarely mixed. While a majority of respondents in our latest survey anticipate both economies to deteriorate over the next six months, both saw double-digit improvements in outlook versus the prior quarter. Notably, there is no clear trend with commentary varying company by company as per our analysis.

Key Themes:

• Outlook — Easing Inflation and Related Interest Rate Forecasts Drive Confidence, Though Executives Toeing the Line of Optimism with a More Positive But Careful Tone; Tangible Gains Not Anticipated Until “Later”
• Consumer — Challenges Persist as Consumer Softness and “Value-Seeking Behavior” Inhibit Volume Recovery Across Sectors, Though Hopeful Signs Emerge for Future Normalization
• Inflation — Execs Continue to Navigate Residual Waves of Inflation; However, “Stable” Macro Conditions are Contributing to Moderated Impacts Overall
• Capital Allocation — In Line with Our Earnings Primer^® Findings, Conservativeness Continues to Abound as Debt Reduction Remains a Core Focus; However, the Sun is Beginning to Peak Through the Clouds of the Deal Environment, and Executives Report Looking for Opportunities
• Artificial Intelligence — From Semiconductors to Restaurants, Staffing to Cars, AI is Transforming the Business Environment, and Companies are Quick to Tout the Benefits of Current and Anticipated AI Projects
• China & Europe — Varied Perspectives Provided for Both Regions on a Company by Company Basis, with Some Pointing to Gradual Signs of Improvement and Others Pointing to Continued Headwinds
• Middle East — Impacts of Recent Freight Turmoil in the Red Sea are Beginning to Bubble Up into Earnings Commentary; Executives Already Pointing to Disruption and Increased Costs