Second-quarter earnings guidance looks gloomy with negative projections outnumbering positives from several sectors, a recent study by Thomson Reuters reveals.

Thomson Reuters

Greg Harrison’s Observation For Thomas Reuters Report

Greg Harrison in the earnings roundup report for Thomson Reuters observes 93 of the 116 companies belonging to S&P 500 (INDEXSP:INX) category have given negative guidance for their second-quarter earnings performance.

Thomson Reuters’ recent report comes on top of earlier reports from various analysts expecting negative results from S&P companies. For instance, CNBC’s Alex Rosenberg reports that their compilation of the data indicates that 81 percent of the guidance given by S&P 500 (INDEXSP:INX) companies for the second quarter of the year has been negative.

Greg Harrison of Thomson Reuters however, notes the first-quarter earnings have shown a growth of 5 percent, despite a meager 1.5 percent growth predicted by analysts earlier at the beginning of the earnings season.

The second-quarter earnings guidance growth was estimated at 6.1 percent at the beginning of April. However, the earnings growth projections for the second-quarter have since been trimmed to 2.8 percent, aided by normal seasonal estimate revision problems and guidance provided by companies.

According to Greg Harrison, with only 14 of the S&P 500 companies providing positive second-quarter earnings guidance, the 6.6 negative to positive guidance ratio is the most negative since the first quarter of 2001. Though further earnings-guidance are expected as the second-quarter earnings season approaches, Greg Harrison feels the negative to positive ratio won’t show much improvement.

As can be seen from the following graph, with the slowing earnings growth, the recent trend is skewed towards more negative pronouncements.

TR NP Ratio Since 2008

Dissecting the second-quarter earnings guidance further in to sectors, Greg Harrison observes the healthcare sector has sounded more negative with the highest negative to positive ratio standing at 13. Traditionally, healthcare companies are conservative with their estimates. However, some companies’ recent negative estimates have given a window into their real concerns.

Thomson Reuters’ reporter recalls the recent lower EPS guidance of 62 cents given by Agilent Technologies Inc. (NYSE:A) as against analysts estimates of 73 cents. Greg Harrison recalls Agilent Technologies chief executive officer Bill Sullivan recently painting a disappointing picture on the global economic outlook pointing to slower recovery across the globe. Bill Sullivan doesn’t expect revenues to grow to match the technology leader’s margins.

As seen in the following graph, consumer discretionary industries also sounded very negative, with 21 negative pronouncements against just two positive ones.

Sectorwise NPR

Greg Harrison feels with consumers showing increasing preference to trade down to less expensive stores, discount retailers have benefited from such cost-cutting moves. However, even Dollar Tree, Inc. (NASDAQ:DTLR) announced its guidance 5 percent below the analysts estimates. The company’s chief executive officer Bob Sasser attributes the fall in consumer spending to higher taxes paired with job concerns.

Greg Harrison concludes that one has to wait and see whether the negative outlook sounded out by companies are the result of their ‘play-safe’ attitude in an uncertain environment or their negative guidance would have the spillover effect on other companies that haven’t provided guidance.

In the latter scenario, the spill-over effect would potentially lead to lower earnings than currently envisaged.