The second-quarter earnings season on Wall Street begins Thursday with PepsiCo (PEP) reporting results for the period ended June 13, followed by Delta Air Lines (DAL) on Friday. These reports come as analysts have raised profit expectations sharply over the past three months, setting a high bar for corporate performance.
Profit Forecasts Surge
According to FactSet, the S&P 500's bottom-up EPS estimate increased by 3.4% from March 31 to June 30, marking the strongest quarterly gain since the second quarter of 2021. This upward revision reflects a more optimistic outlook from companies themselves: out of 111 S&P 500 firms that issued second-quarter EPS guidance, 63 provided positive outlooks, the highest proportion since Q3 2021. The technology sector set a record for upbeat earnings forecasts and is on track for 63.3% earnings growth.
PepsiCo and Delta in Focus
PepsiCo leads the consumer sector. Visible Alpha analysts, as cited by Investopedia, project second-quarter revenue of $24 billion, a 6% year-over-year increase, and adjusted EPS of $2.19. However, the stock has declined about 16% since February highs as investors weigh inflationary pressures and softer snack sales in North America.
Delta Air Lines is expected to report strong travel demand but with higher costs. Wall Street estimates second-quarter revenue at $19.02 billion, up 14%, according to Visible Alpha. However, adjusted EPS is forecast at $1.51, down from $2.10 a year ago, as elevated fuel prices squeeze margins.
Geopolitical and Market Headwinds
Oil prices have risen following renewed fighting in the Gulf, raising inflation concerns and prompting traders to increase bets that the Federal Reserve may need to hike rates again this year. Wall Street futures edged up only slightly on Thursday. Tim Waterer at KCM Trade noted that oil flows in the Strait of Hormuz remain "up in the air," while Aneeka Gupta at WisdomTree described the supply recovery as "real but incomplete."
Bank Earnings Next Week
Major banks report on July 14, including JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC). Coalition Greenwich's Angad Chhatwal projects market revenue growth for the largest global banks of at least 15%, with equities driving most of the gain. JPMorgan CEO Jamie Dimon expects investment-banking fees to rise by 10% or more, while Bank of America Co-President Jim DeMare said markets revenue could exceed the earlier 15% target. Wells Fargo CFO Mike Santomassimo indicated that net interest income should "step up."
Investor Focus Beyond EPS Beats
This earnings season, investors are likely to scrutinize volumes, margins, and management guidance more than headline EPS beats. Since analysts raised estimates during the quarter rather than cutting them, the bar is higher. If PepsiCo, Delta, and the banks deliver solid results, the market may gain some breathing room ahead of major tech earnings. But if numbers disappoint, it could signal that the market is still over-reliant on AI, energy, and trading sectors to sustain earnings growth.
AI remains a concern, but not in the usual sense. The question is not whether demand exists, but whether companies can sustain the spending that investors are counting on. FactSet shows a record number of tech firms issuing upbeat guidance, yet strong results alone may not be enough if management sounds cautious about the next quarter.
