Earnings Watch: Executives seem pretty convinced a recession is coming, and earnings are expected to take a hit

by | Sep 12, 2022 | Stock Market

Executives detailing their second-quarter earnings talked about a recession more than they have since the last actual recession hit the U.S., and anxieties about an economic downturn are weighing on forecasts for the earnings season to come. The word “recession” came up in the quarterly earnings calls of 240 S&P 500
SPX,
+0.66%
companies during earnings calls held between June 15 and Thursday, according to a FactSet analysis published Friday. That’s the highest number since at least 2010, FactSet Senior Earnings Analyst John Butters wrote, and it breaks a prior record of 212 that was hit during the first quarter of 2020, when COVID-19 anxieties descended on the economy.

Among the latest executives to call out a recession was RH
RH,
+1.98%
CEO Gary Friedman, who said the word nearly a dozen times during the high-end furniture retailer’s earnings call on Thursday following its second-quarter results. “People keep saying, are we going to be in a recession? We’re in a recession. Anybody who thinks we’re not in a recession is crazy,” he said. “The housing market is in a recession and it’s just getting started. So it’s probably going to be a difficult 12 to 18 months in our industry.” Other pandemic-era earnings-call refrains were more frequent, the FactSet analysis found — 412 of the S&P 500 companies cited “inflation” during their second-quarter earnings calls, while 325 discussed “supply chain.” Those factors didn’t seem to have much of an effect on second-quarter results, however, as most S&P 500 companies reported second-quarter results that were better than expected. Butters reported that 75% of S&P 500 companies beat earnings expectations, and 70% topped sales forecasts. But some analysts expect those second-quarter anxieties to spill over into results for the third quarter. Third-quarter earnings-per-share estimates have slipped 5.5% since June 30, Butters wrote. That’s the largest drop for a quarter si …

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