Buzzword bingo: What we’re expecting in fourth-quarter earnings calls

Just when we thought 2022 was fully behind us, public companies are here to report the reality of what most of us remember as just a blissful holiday season. Finish your hot chocolate and grab your best knitted sweater, because the US’s largest banks are about to report their earnings, and analysts are expecting the results will send a chill through the markets.

“Everyone is keen to better understand how deep and how long the slowdown in earnings growth—or…the expected decline in earnings growth will last,” Gina Martin Adams, chief equity strategist at Bloomberg Intelligence, told CFO Brew. Right now, the consensus is that “S&P 500 earnings will fall year over year for the fourth quarter, [as well as] the first and second quarter of 2023,” Martin Adams said. “It ends up falling on the company’s shoulders to confirm or deny that.”

If CFO Brew’s Ins and Outs for 2023 are any indication, we should be hearing mentions of prioritizing long-term versus short-term growth, the importance of cash flow, and retention instead of labor growth. We’re keeping our ears out for any technology or R&D investment, which despite tight cash flows, still is top of mind for finance chiefs.

Challenges are certainly on the horizon for CFOs. Kevin Doyle, EVP and CFO for New Balance, told CFO Brew that the “high cost of capital, continued inflationary pressures, fear of a deep recession, and continued impact of a volatile geopolitical environment” will continue to affect how companies operate in 2023.

The big banks of Wall Street got straight to the low point in their projections. Morgan Stanley wrote in its investment outlook that “early in 2023, earnings will collapse, bringing the stock market down with them.” JP Morgan looked on the brighter side, noting there are stocks with “strong earnings potential that are trading at very low valuations,” particularly in climate-related areas and emerging markets. Citi said that 2023 is the primer year for recovery in 2024.

All eyes on margin. Over the past year, companies were able to grow their margins, and fast. They were reeling from a low in the market; so really the only place to go was up. Achieving that same level of growth in 2023 is going to be quite challenging, Martin Adams said.

“If you can’t form a bottom in margins, you can form a bottom in earnings,” she said. “You’re not going to see the end of the earnings recession. We need to see some margin stability emerge before we can.”

“So pick me, choose me…” Consumers probably don’t need to be reminded that energy won 2022. Prices surged due to the war in Ukraine, causing Europe to scramble, and the US rushed to help its allies make up for the resource windfall. But thanks to unusually warm winter weather, the petrol giants may not see the same success twice.

Texas is out, y’all. So, back to SIlicon Valley—or is it Miami now?—the markets will look for a rebound in tech, some analysts are beginning to say. Tech stocks have the ability to win because they have the biggest opportunity to gain margin, improving over a daunting past year.

FT’s editor-at-large Roula Khalaf said on a recent episode of the publication’s podcast, The Rachman Review, that despite the EU being able to hold together this winter, due to a lack of energy storage space, the next winter could still be disastrous, which would eventually drive up oil prices.

“It is also, importantly, about inflation and the Fed,” Martin Adams said. “This cycle is being amplified… As the Fed changes the game on interest rates, it has pretty serious consequences.”—KT