The price of oil dropping from over $100 a barrel to below $50 a barrel over the last eight months has had a major impact on perceptions of future U.S. economic activity. A February 13th report from FactSet Insight highlights that the consensus analyst estimate for first quarter earnings for S&P 500 firms is down by 7.4%. Moreover, the vast majority of the overall decline in the earnings estimates for the S&P 500 relates to significant downward EPS revisions for almost the entire energy sector.

FactSet Senior Earnings Analyst John Butters explains the significance of a 7.4% down revision in earnings estimates. “During the past year (4 quarters), the average decline in the bottom-up EPS estimate during the first half of the quarter has been 2.3%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first half of the quarter has been 1.6%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the first half of the quarter has been 2.8%. Thus, the decline in the bottom-up EPS estimate recorded during the first half of the first quarter was higher than the 1-year, 5-year, and 10-year averages.”

earningsinsight2-13-S&P500 S&P 500 Estimates

Record-setting negative revision in earnings estimates

Of note, this 7.4% decline is the largest percentage decrease in the bottom-up EPS estimate for the S&P 500 for the first half of a quarter since the second quarter of 2009, when analysts sliced 7.5% off their EPS estimates.

Nearly all of the negative revisions to earnings estimates are in the Energy sector. The Q1 bottom-up EPS estimate for the Energy sector has fallen by 48.6% (to $4.31 from $8.38) during the first half of the quarter, not surprisingly representing the biggest decline in any sector.

Butters notes this represents the largest percentage decrease in the bottom-up EPS estimate for the Energy sector for a full quarter since FactSet began tracking this metric back in 2002. Before the current quarter, the greatest percentage decline in the bottom-up EPS estimate for the Energy sector for a full quarter was -42.0% in the second quarter of 2009.