With less than a week until the unofficial start of Wall Street's profit season in the second quarter, investors are bracing for what may be the worst reporting season since the depths of the 2008-09 global financial crisis.
FactSet data shows that analysts expect second-quarter earnings to decline by an overwhelming 43.8% compared to the same period last year. If confirmed, this will be the largest annual decline in earnings reported by the index since the fourth quarter of 2008, when earnings declined by 69.1%.
All 11 sectors are expected to report an annual decline in earnings led by the Energy, Consumer Discretionary, Industrials and sectors.
Revenue expectations are equally alarming, with projected annual revenue growth of 11.1%, which would be the largest decline since Q3 2009. Nine out of 11 sectors are expected to decline year-over-year, again led by the energy, industrial and consumer goods sectors.
Below we break down 3 sectors whose revenues are expected to make the deepest dives:
1. Energy: lower oil prices to hammer results
Q2 EPS -estimation: -148.3% yoy
Q2 Sales forecast: -42.2% year-on-year
The industry is expected to push the most colossal annualized earnings losses, with a stunning -148.3% decline in earnings per share in the second quarter of last year, according to FactSet. Energy, like the other sectors on this list, is facing the biggest drop in annual revenues since FactSet started tracking these data in the third quarter of 2008.
With a low weighting of prices, Revenue for the sector is also expected to decline -42.2%, which would be the largest annual decline for the sector since the second quarter of 2009, when it declined by -45.3%.
Two energy companies were expected to register a drop in their revenues: Marathon Petroleum (NYSE 🙂 and Exxon Mobil (NYSE :).
Marathon Petroleum is expected to see a loss of – $ 1.41 per share compared to per share in the prior year period, while Exxon Mobil is expected to report a loss of – $ 0.55 per share , compared to earnings per share of $ 0.61 in the same period.
Another notable name that will experience a substantial decline in second quarter earnings is Chevron (NYSE :), which is – $ 0.81 per share compared to $ 2.28 in the same period period in 2019.
Since March 31, this sector has witnessed the fourth largest increase in price compared to other sectors, an increase of more than 25%.
2. Luxury Consumer Goods: COVID-19 Impact to Hit Earnings
Q2 EPS Estimate: -119.0% yoy
Q2 Yield forecast: -19.6% year-on-year
The sector is expected to report the second largest drop in earnings annually with a dismal decline of -119%.
Ten of the eleven sub-industries within the segment are expected to record a decline in profit, with seven of those on track suffering a decline of more than 60%, led by auto stocks, which are WPA dive would see -319% decline from a year ago. Inventories in the Hotels, Restaurants and Leisure group are expected to see their profit decrease by -192% compared to the same period a year earlier.
Sales are also expected to shrink by 19.6%, with the Hotels, Restaurants and Leisure sub-sector likely to lead the dive. This group is expected to realize a turnover increase of 60%.
The industry's hardest hit could be Wynn Resorts (NASDAQ :), (up to – $ 4.57 from $ 1.44), Norwegian Cruise Lines (NYSE). :), (up to – $ 2.18 from $ 1.30) and Royal Caribbean Cruises (NYSE :), (up to – $ 4.56 from $ 2.54), all startled by the impact of the COVID-19- crisis.
Car manufacturers will also see revenue stumbling. General Motors (NYSE :), (up to – $ 1.76 from $ 1.64) and Ford Motor (NYSE :), (up to – $ 1.25 from $ 0.28) are two to check.
Surprisingly, Amazon (NASDAQ 🙂 also makes the list. The online retail and cloud computing giant reports a 73% annualized decline in earnings per share to $ 1.37 in the prior year period. A major driver of this likely downturn: the company's plan to spend approximately $ 4 billion on pandemic-related spending.
Despite the fall in expected revenues, this sector has experienced the largest price increase of all sectors since March 31. , an increase of almost 35%.
3. Industry: Airlines will put pressure on sector
Second quarter EPS Estimate: -89.0% yoy
Q2 Yield forecast: -27.4% year-on-year
is expected to report the third-highest drop in earnings annually, an astonishing -89%.
Of the 12 industries in the sector, 11 are expected to report a decline in profits. Four of them will indeed report a drop of more than 50%: airlines (-351%), industrial conglomerates (-71%), machinery (-66%) and electrical equipment (-51%).
The Industry sector is also expected to report its second-largest year-on-year sales decline of -27.4%, which would be the largest year-on-year decline since Q3 2008. The airline industry is again expected to make the largest contribution to the Annual decline in revenue for the sector by -87%.
At the corporate level, profit from Delta (NYSE :), (to – $ 4.43 from $ 2.35), Southwest (NYSE :), (to – $ 2.77 from $ 1.37) and Alaska Air (NYSE :), (- $ 3.94 from $ 2.17) are expected to make the largest contribution to the decline.
Despite the negative profit outlook, the Industry sector has gained 15.8% in price since March 31.
