This Week in Earnings – Q3'23

• With 80% of the S&P 500 reporting earnings to date, 60% have reported a positive revenue surprise, below the 1-year average of 69%.
• Companies are reporting revenue 0.5% above consensus estimates, below both the 1-year average (+2.1%) and 5-year average (+2.0%). Continuing, 82% have reported a positive EPS surprise, above the 1-year average (74%) and 5-year average (77%).
• Companies are reporting earnings 7.0% above consensus estimates, well above the 1-year average of (+4.4%) but below the 5-year average (+8.5%).

In this week’s Sector Beat, we analyzed annual revenue and EPS guidance provided by Consumer Discretionary companies with market caps greater than $500M that have reported to date.

On average, overarching trends indicate a greater number of Consumer Discretionary companies are lowering revenue and EPS guidance versus our All-Company benchmark — a clear reflection of the tightening financial constraints among consumers.

• Revenue: 28% raised, 28% maintained, 44% lowered
• EPS: 39% raised, 19% maintained, 42% lowered

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

• Consumer Health: consumers pull the purse strings tighter; executives note leaner spending habits and trade-down activity, particularly among lower-income shoppers
• Margins: still “levers to pull” as executives tout improved cost structures and easing inflation, though price tags expected to drop as demand drifts
• Inventory: despite diminishing destocking and hints of wholesale recovery, path to ‘normalized’ inventory levels clouded by murky demand
• Inflation: pricing levels are largely normalizing though pressure on wages and select pockets of higher food costs linger
• Regional Spotlight: east meets west as China and Europe outlooks remain wildcards with indicators pointing in both directions