As the first earnings season of 2015 in already heating up, Goldman Sachs gives an update, forecast and what to expect as the fourth quarter 2014 earnings season continues forward. While Goldman expects S&P 500 earnings per share figures of $30.20 for the fourth quarter 2014, up 7% from fourth quarter 2013, overall consensus is not as bullish. As of now, the general consensus for fourth quarter 2014 earnings is estimated to come in at $29.34, which as Goldman notes, is equal to what S&P 500 earned during the second quarter in 2014 and lower than the third quarter 2014 EPS of $29.60. Goldman Sachs still sees full year 2014 S&P 500 earnings per share to show up at $116.
Goldman Sachs: S&P 500 earnings estimates
The general consensus for S&P 500 earnings was originally estimated to come in between $31-32 earnings per share, but estimates began to be slashed around October, as the price of oil began to fall and analysts worries of the impact of low oil began to rise. This led to the current consensus of $29.34 for fourth quarter 2014 earnings per share.
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However, the other major point of emphasis that traders, analysts, and other market officials will be focusing on during the earnings calls, aside from earnings, is forward guidance and how the low price of oil could impact earnings in 2015. Expectations are already being slashed for 2015, full year earnings for the energy sector have already been cut 42%, and non-energy sectors are seeing slight earnings estimate cuts of about 2%. The consensus for full year S&P 500 earnings per share for 2015 are already being forecast to fall 7% compared to 2014 earnings per share.
Goldman Sachs analysts are also watching for signs of oil’s potential impact on earnings for 2015, but currently see the S&P 500 earnings per share for 2015 to come in at $122, from a top-down perspective. Sales per share estimates by Goldman for the S&P 500, excluding financial and utilities, comes in at $1014 and profit margins are forecast to remain at 9.1%, all according to the top-down approach of analysis.
Of the companies that have already reported fourth quarter 2014 earnings, we have seen some mentioning of oil’s potential impact, but management has been very cautious with its wording and phrasing. Some management officials have voiced concern for low oil’s potential impact on the overall economy, as such was the case during the FedEx call on December 17th: “The facts of the matter is that capital expenditures are a huge driver of U.S. prosperity and income, and you see that over on the consumer side just as well as you do lower gasoline prices. So I think it’s not quite the universal good that some people think it may be”.
Pros and cons of lower oil prices
Overall, lower oil prices certainly are a benefit for consumers, but lower oil can seriously disrupt overall economic capital expenditures, which the economy relies on. As Goldman Sachs has noted, the big story and potential fear for 2015 is what sort of impact that lower oil will have on earnings of individual companies, as well as the overall economy. Only time will tell.