This Week in Earnings – Q2'23

• With 51% of the S&P 500 reporting earnings to date, 62% have reported a positive revenue surprise, below the 1-year average of 71%. 
• Companies are reporting revenue 1.5% above consensus estimates, and slightly below the 1-year average (+2.5%) and above the 5-year average (+2.0%). Continuing, 79% have reported a positive EPS surprise, above the 1-year average of 73%. 
• Companies are reporting earnings 6.6% above consensus estimates, well above the 1-year average of (+3.2%) but below the 5-year average (+8.4%).

We analyzed annual revenue and EPS guidance provided by 30 industrial companies with market caps greater than $500M that have reported to date. 

Industrials are seeing a greater number of companies raising guidance across both revenue and EPS, with slightly fewer maintaining than the all-company benchmark. Consistent with the broader universe, few are lowering guidance at this time — a clear reflection of executives’ conservative 2023 projections introduced earlier in the year:

• EPS: 79% raised, 14% maintained, 7% lowered
• Revenue: 54% raised, 23% maintained, 23% lowered

Further, we analyzed the earnings calls for this group and the broader industrial universe to identify key themes:

• Macro Outlook: Despite Continued Near-term Economic Uncertainty, Executives Reinforce Cautious Optimism About the Back Half of 2023 as Conditions “Stabilize”; A Resilient Consumer Continues to Boost Sentiment
• Backlog & Order Rates: An Improved Operational Environment Results in Streamlined Lead Times for Many; Book-to-Bill Ratios are Normalizing (ex-Aerospace and Defense, Where Companies Continue to See Supply Constraints)
• Margins: Expense Management and Moderating Input Costs Support Margin Preservation; Continued Pricing Power is Being Called into Question
• Capital Allocation: M&A ≠ Deal Drought Continues as Buyers Cite Strict Lending Conditions and High Valuations, Though Funnel is Improving from Less Competition for Assets
• Secular Trends: Government Stimulus “Displaying Quantifiable Progress” as Incentive Programs Work Their Way Through the System and Boost Re/Onshoring Efforts
• Regional Spotlight: China – A Reversal from Last Quarter, Companies are Downplaying Their China Exposure as Limited Demand Pressures Pricing, with Some Moving Manufacturing Elsewhere