Profit margins are rising again as macro narratives shift 🤯
The corporate trend that has surprised everyone for years continues 💸
“Corporate profit margins: Will they hold up?”
That was one of TKer’s “9 big stories to watch in 2024.”
According to Q1 financial results and preliminary Q2 results, the answer seems to be an emphatic yes: Margins are actually on the rise.
“The (blended) net profit margin for the S&P 500 for Q2 2024 is 12.1%, which is above with the year-ago net profit margin (11.6%), above the 5-year average net profit margin (11.5%), and above the previous quarter’s net profit margin (11.8%),” FactSet’s John Butters observed on Friday.
And this is not just about high-margin tech companies becoming a bigger part of the S&P. While the performance is mixed, many industries are reporting higher margins. From Butters:
At the sector level, six sectors are reporting a year-over-year increase in their net profit margins in Q2 2024 compared to Q2 2023, led by the Financials (18.4% vs. 16.7%), Information Technology (24.9% vs. 23.3%), and Communication Services (13.4% vs. 11.9%) sectors…
Six sectors are reporting net profit margins in Q2 2024 that are above their 5-year averages, led by the Industrials (10.7% vs. 8.2%) and Consumer Discretionary (8.7% vs. 6.6%) sectors…
Five sectors are reporting a quarter-over-quarter increase in their net profit margins in Q2 2024 compared to Q1 2024, led by the Materials (11.3% vs. 9.4%), Industrials (10.7% vs. 9.2%), and Health Care (8.0% vs. 6.5%) sectors.
And it doesn’t stop there.
“It is interesting to note that analysts believe net profit margins for the S&P 500 will be above 12.0% for the rest of 2024,” Butters wrote. “As of [Friday], the estimated net profit margins for Q3 2024 and Q4 2024 are 12.4% and 12.4%, respectively.”
Passing higher costs off to well-financed customers 💸
Historically high corporate profit margins may have been the most unexpected big story of 2021, 2022, and 2023.
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