In the quarterly publication of what is known as its Beige Book, Goldman Sachs compiles the fundamental and thematic trends of the transcripts of the results of the S&P 500 companies. During the season about to end, three themes have dominated earnings expectations. On the one hand, the pressure and the preservation of the margins. On the other, both ESG initiatives and cash positions.
Regarding margins, in the second quarter they reached an all-time high of 12.1% , despite pressure from input costs. Most companies protect their margins in this inflationary environment by passing price increases on to consumers, while a few focus on managing costs.
On ESG initiatives, even before the UN released its landmark report on climate change this week, discussions on this issue in the results presentations focused on the pressing issue of reducing greenhouse gas emissions.
ESG data providers saw increased demand for climate scenario analysis products and data that quantify the physical risk of climate change. At the same time, the companies explicitly commented on their plans to reduce or eliminate the carbon footprint of their operations. Most plans involve a deadline for reaching net zero emissions, typically in 2050 .
Finally, the cash balances of S&P 500 companies are at high levels thanks to improved earnings as well as debt and equity issuance . Cash-to-asset ratios, both aggregate and average, are near historic highs, allowing managers flexibility in the use of their cash.
Companies are exploring ways to invest for growth (through capital expansion, investment in R&D, and mergers and acquisitions), as well as giving back to their shareholders (through dividends and buybacks). A small subset is taking the opportunity to reduce leverage .
To date, the S&P 500’s second quarter 2021 results have exceeded consensus estimates on all fronts; analysts expected earnings per share (EPS) growth of 61% per year compared to 86% recorded.
As of August 11, 457 companies had presented their results for the second quarter, representing 90% of the S&P 500 market capitalization. Of the companies that have already presented their results, 71% have exceeded estimates. Goldman expects EPS growth of 45% and 2% in 2021 and 2022 , respectively, thanks to stronger revenue and margin prospects.