With less than a week to go until the start of Wall Street in the first quarter of the earnings season, investors are firmly committed to what may be the first US decline in profits since the second quarter of 2016. FactSet data shows analysts Expect the first quarter results to fall by 3.9% on an annual basis. If this is confirmed, it would also represent the largest drop in profits since the first quarter of 2016.
Estimated earnings per share for the first quarter have fallen by 7.2% since December 31, according to FactSet. This percentage decrease is more severe than the 5-year average (-3.2%), the 10-year average (-3.7%) and the 15-year average (-4.0%) for a quarter. Also, compared to the recent quarters, a larger percentage of S&P 500 companies lowered the bar for first quarter earnings.
SPX Change to Quarterly Bottom-Up EPS
Of the 107 companies that issued the Q1 guidelines for the EPS, 79 made negative predictions. At sector level, seven are expected to report a year-on-year decline in earnings, led by the ,, and.
SPX earnings growth Q1 2019
1. Energy
The energy sector is expected to report the largest year-on-year profit decline of all eleven sectors, -18.4%, as lower prices contributed to the expected decline. Despite a price increase during the current quarter, the average oil price in Q1 2018 ($ 62.89) was 13% higher than the average oil price in Q1 2019 ($ 54.81).
A total of 26 of the 29 companies (90%) in the energy sector showed a decrease in their average EPS estimate, led by Hess Corporation (NYSE 🙂 (to – $ 0.32 from – $ 0.02), Noble Energy (NYSE:) (up to – $ 0.03 from $ 0.16) and National Oilwell Varco (NYSE 🙂 (up to – $ 0.01 from $ 0.07). At sub-sector level, four of the six sub-sectors in the sector are expected to report a decline in earnings for the quarter: (-23%), (-21%), Oil and gas refining and marketing (-16%) and (-16) %).
It is also expected that the Energy sector will report the largest annualized revenue decline of all eleven sectors at -3.5%.
2. Materials
The second largest annual increase in profits is expected to come from the Materials sector, namely -12.2%. At industry level, it is predicted that three of the four sectors in this sector will report a decline in earnings for the quarter. One of these industries is expected to report a serious double-digit decline, -40%.
Freeport-McMoran (NYSE 🙂 and DowDuPont (NYSE 🙂 are expected to see the largest fall in profits in the industry. The average EPS estimate for Freeport-McMoRan for Q1 2019 is $ 0.08, compared to EPS of a year ago of $ 0.46, while the average EPS estimate for DowDuPont for Q1 2019 is $ 0.87, compared to an EPS from last year of $ 1.12.
The two companies are so heavily weighted within the sector that if they were excluded, the estimated profit growth rate would rise to 0.4% from -12.2%.
3. Information Technology
The information technology sector is expected to predict the fourth highest fall in profit figures of all eleven sectors, namely -10.5%. Three out of six industries in the sector are expected to report a decline in earnings for the quarter. Indeed, two of these three are expected to fall double-digit: Semiconductors & Semiconductor Equipment (-23%) and (-22%).
Of the 68 companies in the information technology sector, 50 or 74% showed a decrease in their average EPS. Of these 50 companies, 21 have seen a drop in their average EPS estimate of more than 10%, led by Western Digital (NASDAQ 🙂 (up to $ 0.47 from $ 1.11), NVIDIA (NASDAQ 🙂 ( up to $ 0.62 from $ 1.30) and Juniper Networks (NYSE 🙂 (up to $ 0.21 from $ 0.37).
However, Apple (NASDAQ 🙂 and Micron Technology (NASDAQ 🙂 are expected to make the largest contributions to the decline in revenue for the industry.
This sector has also witnessed an unusually high number of companies giving negative sales guidance for this quarter. Overall, 31 companies in the sector have released a negative revenue approach that is higher than the 5-year average (20).
