(Bloomberg) — The major US banks will set the stage for a new year fraught with economic fears and a new earnings season when they deliver fourth-quarter results starting next Friday. As recession has increasingly become a question of “when” not “if”, investors will focus on the financial institutions’ outlook and the level of bad loan provisions they set aside as they brace for worsening economic conditions in the US. Consensus estimates show investment banking may continue to suffer before rebounding mid-year, while leaving questions of whether consumer spending can help prop up results as it has shown signs of moderation.
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The Federal Reserve’s rate hikes have been a double-edged sword for corporate earnings — likely setting record net interest income at most banks for another quarter, but hurting lenders and business at firms tied to the housing markets, also due to report next week, with performance linked to mortgage rates and home demand.
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Earnings highlights to look for next week:
Monday: Acuity Brands (AYI US) is due before the market open. Overshadowed by rising interest rates, the producer of both indoor and outdoor lighting is projected to post the slowest revenue expansion in almost two years, according to Bloomberg consensus. Still, Acuity may surprise Wall Street, having beaten revenue estimates in the past six quarters and topping $1 billion in sales in the past two quarters. William Blair analysts wrote that an increase in order backlog reported by distributors indicates that demand may hold into early 2023. Investors will likely listen for management insights into non-residential construction, as Bloomberg Intelligence and Cowen warned of “weaker” and “moderating” appetite in the end market.
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Jefferies (JEF US), due after the closing bell, will be one of the first financial companies to report earnings this season.
Tuesday: Bed Bath & Beyond (BBBY US) will post full earnings report before the opening bell, a spokesperson confirmed to Bloomberg. The Union, N.J.-based company warned this week that it may need to file for bankruptcy, alongside releasing preliminary results for the fiscal third quarter that missed Wall Street consensus. The troubled home goods retailer said it’s also pursuing an array of strategic alternatives including debt restructuring and asset sales, although adding that these measures may not materialize. An earnings call is scheduled to take place later that morning at 8:15 a.m. in New York.
Wednesday: KB Home (KBH US) is due after the close. Rising mortgage rates and supply disruptions continue to cast a shadow over the home builder, in spite of its focus on first-time and affordable homes that are still favored by potential buyers. For the fourth-quarter, Bloomberg consensus projects a second quarter of double-digit order declines. Wedbush analysts wrote that investors will tune into the earnings call for updates on supply snarls, cycle times and how quickly the home builder can resell canceled homes.
Thursday: No major earnings scheduled.
Friday: JPMorgan (JPM US) is due before market opens. The bank last month said it anticipates 4Q trading revenue may rise about 10% from a year ago on continued strong performance in macro — analysts are calling for a slightly better 11% boost — and that expenses and net interest income could be “a little better” than it had earlier expected. Investors will also be watching for an indication of the scale of buybacks after CEO Jamie Dimon said he hoped to resume payouts early this year.
Analysts are expecting the bank to set aside the most provisions to cover bad loans in a quarter since the beginning of the pandemic in 2020, a reflection of its preparation for potential economic shocks. A similar trend can be seen at other major banks — including Citigroup (C US) and Bank of America (BAC US), also both reporting premarket — as increasing reserves cut into the bottom line, and further into bankers’ bonuses and adding to layoffs.
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Wells Fargo (WFC US) is due premarket. Investor focus will be on the firm’s ability to hold its gain in market share after it scored a top-10 deal adviser spot for the first time last year as it ramps up its investment-banking ambitions and reduces reliance on the mortgage business. Profit and returns could move higher as the lender progresses from the fallout of its regulatory woes, according to Bloomberg Intelligence, although those legacy risks will continue to erode the bottom line as the removal of the Fed’s constraint on its balance-sheet size remains uncertain.
–With assistance from Jeannette Neumann.
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