Earnings Takeaways: Q2 2024

As we close out the second quarter 2024 earnings season, Goldman Sachs Research analyzed company earnings calls to gain perspective on key issues facing company managements.

Over the second quarter, three key themes emerged from these calls: (1) the labor market, (2) the consumer, and (3) artificial intelligence (AI). Here are the takeaways.

Overall, earnings were better than expected

As of August 13, around 90% of companies listed in the S&P 500 have released their Q2 earnings results, collectively representing 87% of the index’s market cap. Among these companies, 55% beat earnings estimates, while 10% missed.

Key themes heard on company earnings calls

Goldman Sachs Research analyzed company conference call transcripts from S&P 500 companies, and the following are the key themes that have emerged from the calls.

1. The labor market: still healthy

Investors have been questioning the strength of the labor market after a weaker-than-expected July payrolls report. Goldman Sachs Research noted that job openings reflect solid labor demand, and the recent increase in the unemployment rate to 4.3% was driven largely by temporary layoffs and by short-term labor supply frictions.

Company commentary on their hiring plans and the labor market in Q2 largely reflects a healthy labor market. While there have been discussions of reducing headcount or slowing the pace of hiring, the commentary signals that post-pandemic imbalances – when there were more job openings than the number of available workers – are beginning to subside and return to pre-pandemic levels.

2. The US consumer: mixed feelings

Goldman Sachs Research noted mixed sentiment on the state of the US consumer. While some companies continue to see resilient consumer spending, others have seen weaker sales because buyers of their products remain under pressure from the economic environment.

Two persistent discussion points in Q2 relate to the affordability or value of a company’s offerings and the disparities between consumers in low versus high income cohorts.

Still, consumer-facing companies’ earnings reports have mirrored macroeconomic data, signaling a healthy US consumer. Earnings results for S&P 500 Consumer Discretionary and Consumer Staples companies show a roughly 60 to 40 split between earnings beats and misses, respectively. This pushes against the notion that consumer weakness is dampening the financial performance of these companies.

Goldman Sachs Research believes that the economic data does give some credence to discussions of disparities between consumers in the top versus bottom income cohorts (where income growth for lower income earners is expected to be slower relative to the higher income earners).

3. AI: broadening 

There is continued enthusiasm over AI, but the focus is turning towards the amount of investment required to capitalize on the technology.

Hyperscalers, companies that build out AI infrastructure such as data centers, real estate investment trusts (REITs), utilities companies, and semiconductor manufacturers, highlighted that continued investment in AI could provide a sustained tailwind for their businesses.

Outside of hyperscaler and AI infrastructure companies, other firms highlighted they have gained in efficiency and productivity from the use of AI within their businesses.  

What to watch for in upcoming quarters

While Q2 2024 earnings showed a robust performance, Goldman Sachs Research is keeping a close eye on profit margins.

They expect S&P 500 profit margins to expand in 2025 but by less than what the consensus expects. The key drivers of company margins include revenue growth and the difference between price and input cost inflation. If sales grow as expected, operating leverage will lift margins. While price hikes have been slowing, so has the growth rate of input costs such as wages.