2022 Corporate Earnings: Where Do We Go From Here?
Understanding the key drivers of growth and strategies to move forward.
Corporate earnings this season are particularly unique. A global recession, the war in Ukraine, and a virus that is still disrupting normal life are among the many factors affecting businesses small and large, resulting in the first quarterly earnings decline since the onset of the COVID-19 pandemic.
Leaders are navigating difficult waters as they are tasked with facing the swirl of the macro-economic environment, moving forward from layoffs and identifying new growth opportunities — all whilst budgets are being slashed across industries. Despite this, there are many positive signals stemming from the recent earnings as many leaders are optimistic about a return to normalcy in 2023.
Prophet looked at close to 100 quarterly earnings results, across varying global industries and sectors, to understand the key drivers of growth, headwinds facing leaders and strategies to move forward in 2023. Here are our learnings on what earnings season could mean as we try to regain balance, agility and growth acceleration in arguably the least predictable time in recent history.
Top Learnings From This Remarkable Earnings Season
1. No industry or organization was shielded from the impact of a sour macroeconomic and geopolitical environment, with many reactively cutting costs to preserve margins.
This is a lackluster earnings cycle for most, with “headwinds” as the key buzzword and an average -22% earnings-per-share decline from Q4 2021. In 2022, businesses optimized for pandemic-fueled growth were forced to adjust to a down-market driven by global inflation, foreign exchange fluctuations, COVID lockdowns in China and additional supply chain disruptions.
As a result, leaders became laser-focused on cutting costs, managing risk and re-evaluating their business model. Banks, for example, are stowing away billions of dollars to protect against rising loan defaults; Harris Simmons, chief executive officer at Zion Bancorporation commented, “We continued to build our loss reserves due to both continued loan growth and the prospect of a slowing or recessionary economic environment in coming months.” Investors are bullish that inflation will slow in 2023, but businesses are managing risk and going lean to prepare for continued pressure.
2. Despite a harrowing cry that “2023 will be a year of optimization and efficiency”, businesses are sharply committed to returning to growth in 2023.
While headlines have focused on streamlining costs, the real takeaway from this earnings cycle is what leaders are laser-focused on: improving top-line growth. Many executives highlighted strategies to remain relevant and stay ahead of the competition, such as improving product quality, bringing new offerings to market and investing in customer experience.
Consumer packaged goods are one of the many industries where executives are investing more in sales and marketing tactics to improve competitive positioning, enhance product superiority, and ensure price increases stick. For example, Mike Hsu, chief executive officer at Kimberly-Clark attributed organic growth in the quarter to “improving our product offering and market positions,” and plans to increase the investment in advertising to “grow the category for the long term”.
Those who have already been executing these strategies saw unprecedented levels of revenue and customer growth in 2022 — even in a recessionary environment. In fact, Prophet found an 8% average year-over-year growth in revenue for the quarter that ended in December 2022.
3. Executives are using this downturn as an impetus for transforming their business and reinventing their brand.
The data is in. Similar to what we saw coming out of the COVID-19 downturn, executives across industries are moving from reactive adaptation to proactive transformation. 2023 has become a fertile breeding ground for brands seeking to drive sustainable, purposeful, and transformative growth. Noel Wallace, chief executive officer at Colgate-Palmolive described how they are betting big on digital transformation as they have now “shifted [their] resources to deliver more breakthrough and transformational innovation” and are confident that, “despite macroeconomic conditions worldwide, we are executing against the right strategy and are well-positioned to deliver sustainable, profitable growth in 2023 and beyond.”
In healthcare, Eli Lilly & Company is calling 2023 an “inflection point” and “a chance to expand our impact on patients and growth potential as an R&D-driven biopharma company,” and in tech, Amazon is “working really hard to streamline our costs [without] giving up on the long-term strategic investments that we believe can change Amazon over the long term.” While budgets are being slashed, executives are exceptionally clear on the need to preserve investments in firm-wide transformation.
4. Commitments to environmental, social and governance (ESG) strategies are even more paramount in 2023.
Pandemic-born ESG strategies were reinforced this earnings season despite a tough macroeconomic climate. Many leaders dedicated time to showing investors how they are measuring up on ESG metrics, such as decarbonization, and activating their investments in the market through new products, solutions and partnerships.
This is especially relevant given the heightened investment from governments and the private sector in decarbonization, which has the potential to catalyze a mini-boom cycle in the “green” economy. To that end, the industrial sector was particularly vocal on the need to meet “growing customer demand for innovative and more sustainable solutions” (Dow) and “accelerate our transition to a low carbon green economy” (Trane Technologies.) It is clear that economic distress is not enough to dissuade businesses from the imperative of implementing an ESG strategy, especially as consumers are ever more watchful.
5. People and teams are imperative to the 2023 turnaround as leaders articulated the importance of building a strong employer brand.
Layoffs are an unfortunate outcome when growth reverses, such as when the pandemic growth bubble popped in 2022. However, executives are now focusing on the path forward as they highlighted strategies to strengthen their core business, better align operating models to their go-to-market strategy and empower remaining employees. Donald Macpherson, chief executive officer at Grainger commented on the need to “strengthen our purpose-driven culture by ensuring Grainger is a place where our team members can be their true selves and have a fulfilling career”, while Bill Rogers, chief executive officer at Truist pointed to leveraging “our increased capacity, expanded capabilities and talented teammates to actualize our purpose.”
This is a difficult time for businesses, employees, shareholders, consumers and society alike. Strategies employed in 2022 to protect margins — such as hiking prices or corporate layoffs — are not going to cut it in the long term. Brands are scaling back investments and cutting costs. However, corporate leaders will see this as an opportunity to take advantage of this moment in time to double down in their growth strategies by optimizing their organizational structure, prioritizing brand and demand marketing investments, bringing a strong employer brand to market, and continuing to consider ESG as core to their strategy all while remaining truly customer-obsessed.