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Illustration: Aïda Amer/Axios

The third-quarter earnings season is going to be telling. We all expected monster numbers across the board out of Q2 results — but this time around, some companies will distinguish themselves more than others for how they’ve managed the escalating supply chain headaches and effects of the Delta variant.

Why it matters: The blistering pace of economic growth is expected to have slowed in Q3. That will show up earnings, which began trickling out last week.

  • Yes, but: Growth will still be substantial compared to 2020, as well as to pre-pandemic 2019 earnings.

By the numbers: Third quarter median EPS in the S&P 500 is expected to reach $48.32, an 8.3% decline from the second quarter, according to S&P Capital IQ consensus estimates.

  • That would represent a 24.5% growth from last year, compared to the 88.5% surge in Q2 2021 from the depths of the pandemic.

Context: The second quarter's year-over-year S&P earnings growth was the largest since Q4 2009 when the economy was climbing out of the financial crisis, according to FactSet.

The big picture: Since 2009, the S&P 500 has beat analyst EPS growth estimates in all but one quarter (Q2 2020, not surprisingly). But it faces an uphill climb to beat in Q3, Sam Stovall, CIO at CFRA Research, tells Axios.

  • In a signal of the evolving challenges, economists have moved their GDP estimates lower over the course of the quarter.

State of play: The energy and materials sectors are expected to drive earnings gains, while travel, leisure and hospitality will be a drag on growth due to the impact of the Delta variant, according to Anastasia Amoroso, chief investment strategist at iCapital.

Data: S&P Dow Jones Indices division; Chart: Axios Visuals

What we're watching: Margins. One of the big questions of the moment is how much businesses are able to raise prices (Bed Bath & Beyond said earlier in the month that it didn't act fast enough — and its stock tanked).

  • Inventory levels, too. Consumer demand has eaten away at stockpiles that were already low due to supply chain slowdowns. Quarter-end stats will signal how much companies may have to spend in Q4 and beyond to restock.
  • Semiconductor reports will offer clues about the Q4 outlook and how quickly the world will rebound from the chip shortage, Amoroso adds.

The bottom line: While 24.5% growth may feel like a buzzkill after 88.5% in Q2, it’s still nearly triple the 9% to 10% that's typical of the S&P 500.

  • "We're continuing to see the economy normalize, post the pandemic, and in this quarter, in particular, we managed to persevere through the Delta variant,” says Amoroso.

Go deeper

Rising car prices fuel AutoNation's great year

Illustration: Brendan Lynch/Axios

Chip shortages could be viewed as a blessing for AutoNation at this point.

Driving the news: The car chain reported its sixth-consecutive quarterly earnings record on Thursday. That's thanks to higher consumer prices driven by production constraints.

Oct 22, 2021 - Podcasts

Comeback companies on the rise

The pandemic rocked thousands of companies across the country, especially those in the service sector. Hertz filed for bankruptcy and Airbnb laid off a quarter of its employees.

So how were these companies able to thrive after knocking on death’s door?

Axios Re:Cap talks with Axios’ chief financial correspondent and author of the weekly Axios Capital newsletter Felix Salmon on the “Lazarus” companies of the pandemic era.

"Atmospheric river" swings Northern California from drought to flood

Satellite view of the bomb cyclone swirling off the coast of the Pacific Northwest and the atmospheric river affecting California on Oct. 24. Photo: CIRA/RAMMB

A series of powerful "atmospheric river" storms are delivering historic amounts of rainfall across parts of drought-stricken California and the Pacific Northwest.

Why it matters: The atmospheric river, packing large amounts of moisture, was causing Northern California to whiplash from drought to flood, as it slowly moved south overnight. It's triggered widespread power outages, flooding and mudslides.

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