Declining earnings growth expectations for S&P 500 (INDEXSP:.INX) firms could bring a pall down over Wall Street. According to a March 14 report from financial research firm FactSet, there has been a major downward revision in earnings growth expectations among S&P 500 companies over the last couple of months.
S&P 500 earnings growth projection down from 4.4% to .3%
FactSet Senior Earnings Analyst John Butters gives an overview of the rapid change in expectations over the last couple of months. “The estimated earnings growth rate for Q1 2014 of 0.3% is also below the estimate of 4.4% at the start of the quarter (December 31). Nine of the ten sectors have recorded a decline in expected earnings growth due to downward revisions to earnings estimates, led by the Consumer Discretionary, Materials, Consumer Staples, and Information Technology sectors. The only sector that has seen an increase in projected earnings growth over this period is the Utilities sector.”
Materials sector with greatest downward revision
The FactSet report highlights the materials sector as suffering the greatest decrease in expected earnings growth, with sector earnings expectations dropping to 0.3% from 9.1% since the beginning of the year. Metals & mining companies with major reductions in EPS estimates include Allegheny Technologies Incorporated (NYSE:ATI) from $0.03 to -$0.08, Cliffs Natural Resources Inc (NYSE:CLF) from $0.39 to $0.10 and Newmont Mining Corp (NYSE:NEM) from $0.48 to $0.18.
The consumer discretionary sector has seen the second greatest drop in anticipated earnings growth, slipping from 12.8% to 4.4% from 12.8% since Dec. 31, 2013. Companies in the sector with the greatest decreases in expected earnings include Amazon.com, Inc. (NASDAQ:AMZN) from $0.52 to $0.22, News Corp (NASDAQ:NWSA) (NASDAQ:NWS) from $0.07 to $0.03 and Expedia Inc (NASDAQ:EXPE) from $0.31 to $0.15.
Weather a factor
The bitter winter here in the U.S. is definitely a factor in the ongoing trend toward negative earnings revisions. Not only do snow and freezing temperatures keep consumers from getting out and spending money, retail establishments have significantly higher heating bills.
FactSet highlights how often companies have mentioned the weather in the context of their recent downward earnings revisions. “Searching through all earnings conference call transcripts for S&P 500 companies between January 1, 2014 and March 12, 2014, the term “weather” was mentioned at least once in 195 conference calls. This number reflects an increase of 81% over the year ago period (January 1, 2013 through March 12, 2013), when the term was mentioned in 108 conference calls.”