84% of S&P 500 companies have beaten earnings estimates this quarter—and these two words keep coming up

Good morning. Corporate earnings are coming in stronger than expected, but S&P 500 executives are still choosing their words carefully.

We’re about two-thirds of the way through Q1 earnings season, and several themes are emerging from earnings calls, from AI and revenue beats to geopolitical risk and oil prices. FactSet has released its latest update, and Q1 earnings season looks much stronger than expected, not just modestly better.

—With 63% of S&P 500 companies reporting so far, 84% have beaten EPS estimates, well above the five-year average of 78% and the 10-year average of 76%.
—If 84% is the final number for the quarter, it would mark the highest share of S&P 500 companies reporting a positive EPS surprise since Q2 2021, when 87% beat estimates, according to FactSet.

The blended earnings growth rate now stands at 27.1%, up sharply from 13.1% at the end of March. For Q2 through Q4, analysts are projecting earnings growth of 21.3%, 23%, and 20.6%, respectively.

I asked John Butters, VP and senior earnings analyst at FactSet, whether companies are using any recurring keywords or phrases on earnings calls to signal caution about demand, margins, costs, or the outlook for the coming quarters, especially as corporate earnings prove more resilient than expected.

“We’re seeing the highest percentages of S&P 500 earnings calls citing the terms ‘Middle East’ and ‘oil’ going back at least five years, to 2021,” Butters told me. FactSet will continue tracking the data through the rest of earnings season, and the percentages could change as more companies report.

And what about AI? About 65% of S&P 500 earnings calls have cited the term “AI” so far, Butters said. That is slightly below the previous quarter’s 68%. However, the previous quarter was also the highest percentage going back at least five years, he explained. That makes the current 65% the second-highest share of S&P 500 earnings calls citing “AI” over that period.

For several other terms, including “inflation,” “supply chain,” “uncertainty,” and “recession,” the percentages of S&P 500 earnings calls citing them are above the previous quarter, but not close to their peak levels over the past five years, Butters said.

Another key finding of the analysis:
—81% of S&P 500 companies have reported revenues above estimates, exceeding the five-year average of 70% and the 10-year average of 67%.
—If 81% is the final number for the quarter, it would mark the highest share of S&P 500 companies reporting a positive revenue surprise since Q2 2021, when 87% beat expectations.

For CFOs, the results so far offer a cautiously optimistic signal: profits and revenues are holding up better than expected. But with analysts now forecasting double-digit earnings growth for the next three quarters, the bar for the rest of the year is getting higher.
 
Sheryl Estrada
sheryl.estrada@fortune.com

This story was originally featured on Fortune.com