Corporate Profits Prove Resilient: Headwinds and Conservative Consensus Fail to Thwart Cross-Sector Growth

Written By Chris Odeh, Director

November 4, 2021

Despite investors’ significantly lower expectations heading into Q3 2021 earnings season, companies have so far delivered, outpacing estimates by a wide margin. According to FactSet’s Earnings Insight report, of the ~56% of S&P 500 companies reporting quarterly earnings, 82% have posted a positive EPS surprise and 75% have reported a positive revenue surprise.  As a result, the S&P 500 is hovering near all-time highs of ~$4,600, rallying ~7% since the start of earnings season and recovering from September’s losses.

Actual performance seems unfazed by recent market uncertainty.

In large part, this quarter’s positive surprises manifested from a mix of negative analyst revisions to the S&P 500 earnings estimates and resilient corporate earnings results. Market dynamics, including inflation concerns, constricted supply chains, and labor shortages, along with soaring energy prices and wage increases, initially ushered in a sense of caution for the Street, with many investors anticipating decelerating production levels and margin contraction.

But companies largely maintained their projections and delivered what they said they would, continuing to meet their sales targets and expand their margins despite headwinds and a rising cost environment. Subsiding concerns about the Delta variant, pent-up consumer demand, and continued low interest rates all helped. Record global M&A deal volume and seasonal retail demand also supported the bullish narrative for stocks.

Cyclical segments stand their ground.

Analysts’ negative revisions were especially pronounced in cyclical sectors like industrials and consumer discretionary. These industries have delivered some of the biggest comebacks emerging from the COVID crisis, and they continued their upward climb again this quarter.

Across the board, one of the top performing sectors was energy. This sector benefited from surging gas and commodity prices, leading to record level gains as the sector significantly outpaced estimates for the period.

Momentum remains strong but will slow as the post-COVID recovery moderates.

After peaking at 88% last quarter, blended YoY EPS growth for the S&P 500 is on track for 36.6% this quarter, marking what would be the third-highest growth rate since Q3 of 2010 according to FactSet. While these impressive results can be attributed in part to higher earnings in 2021, they are also based on an easier comparison to weaker earnings in 2020. In other words, the S&P 500 has been benefiting from prolonged tailwinds over the year, fueled by estimates that dropped extremely low during the height of the global pandemic.

Now, the earnings bounce back from last year’s lows is tapering. And, to add insult to injury, all of the headwinds that caused concern for investors this earnings season are still circling, including growing concerns around more persistent inflation pressures that could lead to a more hawkish monetary policy stance sooner rather than later. As a result, it appears that companies and the Street collectively expect slower earnings growth going forward. And issuers seem to share this sentiment.

Specifically, of the 40 S&P 500 companies that have issued Q4 2021 guidance, 25 companies have issued negative EPS guidance, with the industrials sector heavily represented in this group. The remaining 15 companies, led by businesses from the energy and materials sectors, have issued positive EPS guidance. On net, this represents just a 0.9% increase in EPS estimates for Q4 2021, a strong sign that the momentum is rapidly slowing down.

Investors are now in a recalibration phase.

Accurate growth figures are going to be more important than ever as companies report FY 2022 guidance. Market participants are in a recalibration phase as they shift expectations from the post-COVID recovery narrative, which continued to fuel growth and outpace estimates through an eclectic mix of micro and macro factors coupled with easier year-over-year comparisons and downward revisions over the quarter. Looking ahead at 2022 guidance, key questions remain around companies’ ability to forecast growth as valuations normalize and their ability to execute on strategic initiatives despite lingering headwinds over the projected period. The general expectation is that supply chain constraints and labor shortages will maintain across the first half of 2022, which could make for a turbulent market when paired with rising interest rates. Investors will be listening closely, specifically looking at corporate margin structure given push and pull inflation dynamics and rising labor costs.

It will be up to companies to restore investor confidence in their ability to execute against their targets as the headwinds persist and the Street’s perspective continues to skew bearish over the short term. Companies will need to share their projections – and the financial narrative behind them – in the most compelling, convincing, and detailed ways possible. Similar to Q2 and Q3 of 2020 at the peak of COVID, we may see companies developing unique practices to drive transparency and foster confidence by disclosing things like scenario models or key operational metrics. If you’re looking for help telling your story and securing investor confidence in your projections, give us a call. We can help make your investor communications as powerful as possible for these most critical of times.


S&P 500 Sector-Level Earnings Surprise % and QTD Price Change %: Q3 2021


S&P 500 Sector-Level Net Profit Margins Change (in bps): Q3 2021 vs Q3 2020

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Key Commentary on Macroeconomic Headwinds by Sector

Communication Services

  • “Are we seeing some supply stress right now in certain places as part of the reason why we guided down to $2.5mm this year? The answer to that is yes. It’s coming in interesting places, but the great news is, when you’re the scale player in the market, we work through those faster and with the preferred position than others.” – John Stankey, CEO & Director; AT&T, Inc.

Consumer Discretionary

  • “Due to part shortages and logistics variability, we have not been able to run our factories at full capacity.” – Zachary Kirkhorn, CFO; Tesla, Inc.
  • “We are not immune to the global supply chain headwinds that are challenging the manufacture and movement of product around the world.” – John Donahoe, CEO & Director; Nike, Inc.
  • “Our experience with COVID-related factory closures suggests that reopening and ramping back to full production scale will take time.”  – John Donahoe, CEO & Director; Nike, Inc.
  • “While we are seeing an impact from the rising commodity and labor costs, we have also been adjusting pricing which should help to compensate.” – Zachary Kirkhorn, CFO; Tesla, Inc.
  • “Despite these increases in production and generally higher prices, our backlogs are continuing to grow and average customer wait times are extending” – Zachary Kirkhorn, CFO; Tesla, Inc.
  • “Consumer demand for NIKE remains at an all-time high, and we are confident that our deep consumer connections and brand momentum will continue.” – John Donahoe, CEO & Director; Nike, Inc.

Consumer Staples

  • “Supply chains are under pressure from tight labor markets, tight transportation markets, and overall capacity constraints.” – Andre Schulten, CFO; Procter & Gamble Co.
  • “We experienced the full impact of rising commodity and transportation costs this quarter, but healthy top line growth and strong cost savings kept EPS growth nearly in line with prior year.” – Andre Schulten, CFO; Proctor & Gamble Co.
  • “We are not immune to the commodity inflation that has been impacting the world for the better part of 2021, nor the rapidly changing environment.” – John Murphy, CFO & Executive Vice President; The Coca-Cola Co.


  •  “Supply has been impacted in part by lower associated gas, just a slowdown in some supply activity. So, seeing demand and supply a little bit out of sync is something that we’ve seen in the past and we expect that markets will work.” – Pierre Breber, VP & CFO; Chevron Corp.
  •  “We are seeing high gas prices. It does feel more cyclical than structural.” – Pierre Breber, VP & CFO; Chevron Corp.
  •  “In the base business, certainly the higher price of energy is impacting our manufacturing. We’re advantaged in that space generally because most of our facilities are more energy efficient than our competitors. And so while that’s raising cost across the board, with that advantage, we’re able to kind of stay below where the rest is.” – Darren Woods, Chairman & CEO; Exxon Mobil Corp.
  •  “We’ve seen demand very resilient through COVID on natural gas in particular.” – Pierre Breber, VP & CFO; Chevron Corp.


  •  “We still are a little bit concerned about inflation I think relative to the consensus and all of that contributes to a willingness to be relatively patient about liquidity deployment.” – Jeremy Barnum, CFO; JPMorgan Chase & Co.
  •  “Labor inflation is a question. You saw us raise wages in parts of the US at the entry level that just came into effect this September.” – Jeremy Barnum, CFO; JPMorgan Chase & Co.
  • “Sales are still up. Credit card, debit card spends are still up. Consumer’s in great shape and capitalism works.” – Jamie Dimon, Chairman & CEO; JPMorgan Chase & Co.
  • “I doubt we’ll be talking about supply chain stuff in a year. I just think we’re focusing on it too much and it’s simply dampening a fairly good economy. It’s not reversing a fairly good economy.” – Jamie Dimon, Chairman & CEO; JPMorgan Chase & Co.

Health Care

  • “We are excited about the continued progress of our strategy in the home, but consistent with our home health peers, we recognize that the national nursing labor shortage poses a significant risk to the industry, and we are taking proactive steps to address it as part of our well-developed integration process with Kindred at Home.” – Bruce Boussard, President, CEO & Director; Humana Inc.


  • “Many companies are facing supply chain disruptions, the result of a convergence of issues, including the Delta variant, strong demand, energy and labor shortages, and extreme weather events.” – Michael Roman, Chairman & CEO; 3M Co.
  • “On any given day, we are working with more than 300 suppliers with critical constraints.” – Michael Roman, Chairman & CEO; 3M Co.
  • “Inflation is high, but within our expectations, and we remain on track for CASM-ex down in 2022, down approximately 4% in 2023 and down approximately 8% in 2026 vs. 2019.” – J. Scott Kirby, CEO & Director; United Airlines Holdings, Inc.
  • “In parts of the country, labor costs are higher than they were last year, but we are effectively managing through that cost pressure.” – Carol Tome, CEO & Director; UPS, Inc.
  • “We are taking multiple actions to help offset inflationary pressures, including price increases, dual sourcing, and improving factory yields, with more work to do.” – Michael Roman, Chairman & CEO; 3M Co.
  • “We kicked off Q3 with strong momentum as pent-up leisure demand soared, and business bookings began moving in the right direction, though we obviously knew that the Delta variant was a risk.” – J. Scott Kirby, CEO & Director; United Airlines Holdings, Inc.
  • “We are now past what we believe is the worst of the booking impact from this wave of the Delta variant.” – J. Scott Kirby, CEO & Director; United Airlines Holdings, Inc.
  • “With respect to the macroenvironment, overall end market demand remains strong, though the semiconductor shortage continues to impact many markets, most visibly in electronics and automotive.” – Michael Roman, Chairman & CEO; 3M Co.

Information Technology

  • “During the September quarter supply constraints impacted our revenue by around $6B and we estimate the impact from supply constraints will be larger during the December quarter.” – Luca Maestri, CFO & SVP; Apple, Inc.
  • “Demand remains strong across all of our segments, and I continue to believe that we’re just starting a cycle of sustained growth, which we are well-positioned to capture.” – Patrick Gelsinger, CEO & Director; Intel Corp.
  • “Demand was very robust, and we set a new September quarter record of $83.4B, up 29% from last year and in line with what we discussed on our last call, despite larger than expected supply constraints.” – Tim Cook, CEO & Director; Apple, Inc.


  • “Many industries continue to see elevated order backlogs, coupled with low inventory levels, as supply chains struggle to keep up with the robust demand. These supply chain disruptions are expected to persist, which will certainly prolong the ability to restock inventories across most value chains.” – Howard Ungerleider, President and CFO; Dow, Inc
  • “We expect robust economic growth to continue. With the Delta variant slowing the reopening of economies around the world, there remains significant pent-up demand globally, particularly across our industrial and consumer end markets.” – Howard Ungerleider, President and CFO; Dow, Inc

Real Estate

  • “Now with respect to employment, this is well beyond retail. And I mean, it’s a — with all the political back and forth going on, it’s really not talked about. And just from a CEO point of view and just someone that’s worried about growing our overall economy because obviously, we’re correlated to GDP growth, we’ve got to figure out whatever is causing the lack of employment growth. We’ve got to get to the root of it because it’s not clear to me that there’s a big focus on it.” – David Simon, Chairman, CEO & President; Simon Property Group
  • “Liquidity fueled strong business performance and a tight labor market are clearly factoring into remote work decisions by businesses. However, as time progresses and the shortcomings of remote-work become more apparent, we increasingly hear concerns from business leaders about the decaying cultures of their companies, inadequate training and difficulties in onboarding new professionals as well as the potential for deterioration in innovation and competitiveness. We believe it’s only a matter of time before employers more strongly encourage their teams to return to in-person work.” Owen Thomas – CEO & Director; Boston Properties


  • “Our supply chain strategies also continue to mitigate cost increases for chemicals, valves, construction materials and other safety supplies. Our team has strong relationships with key suppliers to ensure we have priority when items essential to operating our business earn short supply. This was especially important during the initial phases of the COVID-19 pandemic, and it continues to be critical as we see significant pressures on the national supply chain currently.” – Cheryl Norton, Executive VP & COO; American Water Works Company, Inc.
  • “And as of now, we expect the commodity portion of natural gas bills to be approximately 20% higher than last winter’s extremely low levels. Due to COVID prices were pretty low last year and well below levels we experienced a decade ago after Hurricane Katrina struck the Gulf of Mexico and Louisiana.” – Philip Lembo, Executive VP, CFO; Eversource Energy

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