Sector Scorecard: Health Care Posts the Season's Best Beat Rates While Its Profits Shrink
Drill below the index-level headlines of this earnings season and the sector detail tells a stranger story. According to FactSet's Earnings Insight report dated August 7, health care companies have beaten earnings-per-share estimates at a 98% clip this quarter, the best of any S&P 500 sector, and topped revenue estimates 96% of the time. Yet health care is also the only sector reporting a year-over-year earnings decline, with profits down 6.7%.
The apparent contradiction is really a story about expectations. Analysts had marked health care numbers down far enough that companies could shrink and still surprise to the upside. The sectors actually generating growth look different: FactSet's data show energy leading the index with earnings growth of 147.0%, followed by communication services at 117.0%, consumer discretionary at 91.6%, information technology at 70.4% and materials at 41.7%.
Technology sits near the top of both tables. Per FactSet, 90% of information technology companies have beaten EPS estimates and 86% have topped revenue forecasts, while the sector's revenue is growing 35.9% year over year, with all six of its industries expanding. Industrials are close behind on execution, with an 89% earnings beat rate and 82% of companies exceeding sales estimates.
The laggard is unambiguous. Utilities posted the lowest beat rates in the index, with 70% of companies topping EPS estimates and just 47% clearing revenue forecasts, per FactSet. That makes utilities the only sector where a majority of companies missed on the top line in a quarter when 76% of the full index beat revenue expectations.
Revenue strength is otherwise remarkably broad. All eleven sectors are reporting year-over-year revenue growth, FactSet's data show, led by energy at 42.5%, where all five sub-industries expanded, and communication services at 15.3%. Ten of eleven sectors are reporting earnings growth, and the index-level aggregates remain historic: companies in aggregate have reported earnings 29.2% above estimates, the largest surprise since FactSet began tracking the figure in 2008, and revenue 3.2% above estimates, tied with the second quarter of 2022.
As this publication has noted previously, part of that record surprise reflects unusually large investment gains at Alphabet and Amazon, which FactSet says totaled a combined $151.4 billion and mechanically inflated the aggregate figures. The sector detail is useful precisely because it strips some of that distortion out: even excluding the mega-cap effect, beat rates of roughly 90% across health care, technology and industrials describe unusually consistent execution.
The sector table also frames the week's remaining reports. Cisco Systems on Wednesday and Applied Materials on Thursday both report into a technology sector that has cleared bars at a 90% rate, which cuts both ways: the pattern suggests estimates were beatable, but it also means a miss would stand out starkly against the season's tape.
For investors reading the scorecard, the practical takeaway is about where the bar now sits. With the index trading at 20.0 times forward earnings per FactSet, slightly above its five-year average, the sectors that beat most often were frequently the ones expected to do least, and the market has already shown it distinguishes between clearing a lowered bar and raising a high one.
