Wall Street Sees a Profitable Year Ahead, as Companies Manage Costs

After nearly two years of economic fears, Wall Street’s expectations for individual businesses’ quarterly results are beginning to shift, with analysts becoming more optimistic about corporate profit in the months ahead.

While estimates for quarterly results often fall as earnings season approaches, analysts have raised their profit forecasts for the first time in two years, according to a FactSet study released Friday.

Holdouts are easy to detect, but Wall Street analysts improved their third-quarter earnings per share projections for the 500 businesses in the S&P 500 Index SPX between July and August, according to the study.

“In fact, this quarter marked the first increase in the bottom-up EPS estimate over the first two months of a quarter since Q3 2021,” noted FactSet Senior Earnings Analyst John Butters in the research.

Earnings per share estimates for the third quarter grew 0.4% from June 30 to August 31, he said. Estimates for the fourth quarter grew by 0.6% for the same time period.

As results dates approach, optimistic expectations fade and financial reality sink in, although the Federal Reserve recently stated that it now expects a “noticeable slowdown” rather than a recession. According to several economists, the August jobs report was just what the Fed needed to conclude its rounds of interest-rate hikes, which it has used to weaken consumer borrowing and spending power and cut inflation.

According to a review of earnings call transcripts, executives are talking less frequently about a recession, according to the FactSet report. Beginning on June 15th,

According to the data, “the number of S&P 500 companies citing’recession’ on earnings calls has declined for four straight quarters” through August 31.

Nonetheless, JPMorgan analysts recently stated that the collective corporate profit forecast for 2024 is “too optimistic.” More pessimistic analysts have pushed back their recession forecasts to next year.

This Week’s Earnings Are as Follows:

According to FactSet, only two S&P 500 businesses will publish quarterly results this week. Docusign Inc. DOCU, +2.72%, Smith & Wesson Brands Inc. SWBI, -0.26%, C3.ai Inc. AI, +0.64%, and Gitlab Inc. GTLB, +3.80% are among the firms reporting earnings this week.

The Appointment You Should Make

Kroger’s thoughts on ‘disinflation,’ consolidation: Kroger Co., a grocery store giant, reports earnings on Friday. As has been the case for the previous year, the figures will focus attention on the ebbs and flows of inflation. Consumers have been squeezed while food producers and grocery shops have profited. Kroger KR, -0.88% announced in June that it has undertaken “targeted” pricing cuts to benefit consumers impacted harder by inflation, allowing it to compete with rival supermarkets while jeopardizing its bottom line. While executives acknowledged that inflation had begun to lessen, they predicted that the spending environment would “remain challenging for our customers as they deal with higher interest rates and an uncertain economic outlook.” Meanwhile, the Kroger-Albertsons Cos. Inc. ACI, +0.27% combination continues to raise concerns about increasing costs, competition, and consumer access.

The Number to Keep an Eye On

GameStop results: Following its quarterly results in June, GameStop Corp. did not host a conference call. However, the tension around the video-game retailer and its stock manifested itself in other ways. In June, GameStop ousted its CEO, and activist investor Ryan Cohen was named executive chairman. It announced the resignation of its chief financial officer in July, who left the company last month. Wedbush analyst Michael Pachter emphasized hardware growth for Nintendo and Sony, as well as a “compelling” software slate, ahead of the company’s second-quarter earnings on Wednesday, and mentioned the company’s nearly $1.3 billion in net cash. He did, however, state that GameStop “appears to have lost market share in recent quarters.”

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