Earnings Takeaways: Q1 2024

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Here are the latest insights from Goldman Sachs Research on key issues facing company management teams.

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

Over the first quarter of 2023, three key themes emerged from these calls: (1) artificial intelligence (AI), (2) the state of the US consumer, and (3) expense management. Here are the takeaways.

Overall, earnings were better than expected

As of mid-May, around 90% of companies listed in the S&P 500 had released their Q1 earnings results, collectively representing 88% of the index’s market cap. Among these companies, 60% posted positive earnings surprises, while 10% posted negative earnings surprises.

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. AI: growing demand

AI continued to be a dominant theme this earnings season with 41% of S&P 500 companies mentioning “AI” on earnings calls, up from 23% a year ago. Unsurprisingly, the Information Technology (IT) sector had the highest proportion of companies (87%) mentioning AI.

IT firms highlighted growing demand for their products, plans for further investment, and strategies to monetize these products and services. Meanwhile, companies outside of the IT sector were more focused on ways AI can improve productivity and enrich existing product offerings.

2. US consumer still strong but price-conscious

Following mixed macro data in recent months, earnings calls revealed a tale of two consumers. Financial sector companies have noted continued strength in consumer spending and household balance sheets.

However, the tone was more cautious among consumer-facing companies who observed that individuals are becoming more discerning, often opting for lower-priced products. Companies across the board are focusing more on the affordability of their products and services, with 20% of consumer-facing companies mentioning “affordability” during their earnings calls, the highest rate recorded since 2012.

Despite the shift towards affordability, certain industries like cruise lines, airlines, and entertainment companies still noted strong demand. Additionally, 83% of Consumer Staples companies posted positive earnings surprises, the highest among S&P 500 sectors, reflecting a better-than-feared earnings season. The sector rose by 6% from mid-April to mid-May compared to 2% for the S&P 500.

3. Expense management: focus on profitability

Similar to household budgeting, if sales or revenue represents take-home pay, what’s left after expenses would represent the household’s earnings. This quarter, the average earnings surprise for S&P 500 companies has been 11% ahead of expectations, while the average sales surprise was only 1%. This indicates that company actions to reduce expenses and bring costs under control were the key driver to better-than-expected earnings results.

Goldman Sachs Research expects the profitability of firms to remain a key area of focus, as long as the timing and number of fed funds rate cuts remain uncertain.

What to watch for in upcoming quarters

While Q1 2024 earnings showed a robust performance, Goldman Sachs Research is keeping a close eye on consumer strength. The theme of a more challenged US consumer is not new, but the mixed tone from companies’ earnings call commentary will be an ongoing focus.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions.