Current reporting season: Investors should pay attention to this when presenting the balance sheets

• Geopolitical risks and rising costs
• Conservative first quarter earnings forecasts
• Mixed earnings forecasts in the banking sector

According to Deutsche Bank, the growth of the companies in the S&P 500 is estimated at 4.7 percent for 2022. The global political situation with the Ukraine war and the sanctions against Russia weighed on the US economy in the first quarter of 2022, as did rising prices, the enormous increase in inflation and supply chain problems. Actual figures will again exceed analysts’ estimates this quarter. According to Deutsche Bank, earnings forecasts in the USA are traditionally too conservative. The fact that most of the economic risks are located outside of the USA, while sales are largely generated within the United States, could also provide positive surprises, “beats”. In some of the companies’ main sales countries, such as Canada, Mexico and China, the economy also developed well in the past quarter. The more upside surprises appear in the earnings season, the more likely it is that the US stock market will recover from its recent swings.
According to the analysts at Deutsche Bank, the outlook for the coming months is almost more important for the “guidance” of companies than the results of the reporting season. At present, expectations of the successful handling of the current challenges are rather moderate, which also harbors the potential for positive surprises in share prices.

Pioneering results

The sales and profits in the first quarter of the year will therefore be indicative for the forecast of the sales of the individual companies as well as for the overall market. The results at the index level are considered solid, but the individual sectors are rated very differently: winners in the analyst forecasts are the energy sector (plus 30 percent), REITs (real estate investment trusts; plus 12 percent) and the IT sector (plus 3 Percent). In the case of the banks, on the other hand, the profit forecasts are being scaled back by 24 percent. A high proportion of sales in Europe and a high energy demand due to the sharp rise in energy prices have a corresponding effect on the forecast for the individual companies.
According to Forbes, Citigroup is the only major American bank with relevant business activities in Russia. This explains the massive slump in the company’s earnings estimates. But the other financial institutions must also expect higher costs, increasing personnel costs and commodity prices, and lower earnings in the areas of mortgages, trade and investment banking.

Correction of profit forecasts

The rise in interest rates has practically eliminated the correlation between share prices and bank yields. Gloomy forecasts for economic growth have also weighed on share prices due to the inverted yield curve. Bank share prices have already lagged behind those of the market as a whole in the past quarter. According to the online stock exchange, a decline in profits of more than 30 percent is expected for financial institutions in the first quarter of 2022. DWS chief strategist Stefan Kreuzkamp also anticipates falling profits for 2022 compared to €uro on Sunday. “We expect companies’ profit forecasts to be revised downwards in the coming weeks, as many companies will no longer be able to cope with the rising costs passed on to consumers, who are also confronted with falling real wages.”
Banks are now having to set up significant loan default provisions, which in turn is shrinking profits. Charlie Scharf, CEO of Wells Fargo, also expects in the quarterly report that loan losses for his bank will increase in the future – the interest rate hike by the US Federal Reserve to slow down inflation and the effects of the Ukraine war acted as a downside risk.
However, the turnaround in interest rates in the USA also means an increase in the banks’ net interest margin. Sustained credit growth and a higher net interest margin can therefore have a positive impact on financial stocks. The US banks therefore remain interesting for investors despite the lower earnings reports in the first quarter of 2022.

The quarterly results of the S&P 500 companies

Numerous companies have opened their books in the past few days. Some pioneering companies are listed below. Especially in the financial sector, with the banks, the global political events and the economic situation are noticeable.
Delta Air Lines reported its loss per share at $1.23, compared to -$3.55 in the same quarter last year, increasing first-quarter revenue by 125.25 percent to $9.35 billion -Increase dollars.
Fastenal, the lanyard manufacturer, just surpassed analyst forecasts ($1.69 billion) at $1.7 billion last quarter, up more than 19 percent year-on-year.
The war in Ukraine and the sanctions against Russia hit the bank JPMorgan Chase hard in the first quarter of 2022, with balance sheet burdens amounting to around half a billion US dollars. CEO Jamie Dimon said when presenting the figures that he remains optimistic about the economy in the short term, even if geopolitical risks and economic factors such as high inflation or supply chain problems continue to pose challenges. It wasn’t just the war that weighed on the numbers, revenue fell 5 percent to $31.6 billion, and net profit shrank by as much as 42 percent. The expected loan defaults are also significantly higher than the analysts had forecast.
Financial services company PNC posted earnings of $3.23 per share last quarter, down from a forecast of $2.77. Total sales increased by 11.18 percent. Goldman Sachs, on the other hand, had to post a drop in sales of 26.95 percent in the last quarter. Earnings were estimated at $8.90 per share, exceeding the forecast at $10.75.
The fifth-largest US bank, US Bancorp from Minnesota, was able to increase its turnover by 2.30 percent to USD 5.6 billion in the first three months of the year. It has exceeded the forecast, which analysts had assumed of 5.56 billion US dollars. In contrast, the New York money house Citigroup recorded balance sheet burdens of almost two billion US dollars in the past quarter due to the Ukraine war and the sanctions against Russia. The Bank remains active in Russia but is making efforts to reduce its exposure. Compared to the same quarter last year, the surplus shrank by about 46 percent to 4.3 billion US dollars. The quarterly figures beat expectations, however, as total revenues fell just 2 percent to $19.2 billion. The financial services provider Wells Fargo from California reported a 2.61 percent drop in sales compared to the same period last year.

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