Corporate profits

War, inflation set to weigh on corporate earnings despite rising revenues

America’s biggest companies are expected to show slowing earnings growth when they release their first-quarter results in the coming weeks, with soaring inflation and the war in Ukraine weighing on profits.

Earnings announcements from companies listed on the S&P 500 index are expected to accelerate over the next two weeks, with groups accounting for 70% of the market value of the blue-chip index by the end of April, according to the data compiled by Goldman Sachs.

Analysts expect S&P 500-listed groups to post an average annual growth of 5.2% in earnings per share, taking into account companies that have already published reports and estimates for those that do not. haven’t done, according to FactSet data.

This would mark a sharp decline from the 32% growth rate in the fourth quarter of 2021 and represent the slowest pace since the last three months of 2020.

Revenues for S&P 500 companies are expected to rise 10.9%, led by the energy, materials and real estate sectors. However, Goldman noted that profit margins are expected to contract by 0.05 percentage points to 11.8%.

“If expectations come true, [the] The first quarter of 2022 would be the only quarter in the past 30 years with net margin contraction amid double-digit sales growth, with the exception of 2008 and the fourth quarter of 2011,” Wall’s bank said. Street.

“Similar to the current macroeconomic environment, these periods were marked by relatively high inflation and strong increases in crude oil prices.”

Inflation should be a headwind for businesses. Of the top 26 S&P 500 companies that reported results, FactSet said nearly two-thirds cited costs and labor shortages as weighing on results.

Pandemic-related spending and supply chain disruptions were also noted as negative contributors.

Bar chart of revenue growth (%) showing energy will see the strongest sales growth due to soaring oil prices

The energy sector is expected to top the S&P 500 as soaring oil prices boost revenues and profits. The industry is expected to report profit growth of 255%, while revenues are expected to rise nearly 45% from a year earlier, supported by a sharp rise in crude prices.

Oil prices have been volatile following Russia’s February 24 invasion of Ukraine.

Brent crude, the international oil benchmark, jumped to nearly $140 a barrel last month, only to give up some of those gains after the United States announced it would release emergency reserves. Further Covid-19 lockdowns in China have raised the prospect of weakening demand for oil.

US banks kicked off corporate reporting season last week. JPMorgan Chase, Citigroup, Goldman Sachs and Morgan Stanley all reported lower earnings as trading activity slowed and lenders beefed up their provisions for potential credit losses due to economic uncertainty caused by the conflict in Eastern Europe.