Earnings Shift Into High Gear, S&P 500 Earnings Expected To Decline

Earnings Shift Into High Gear, S&P 500 Earnings Expected To Decline

Earnings season hits its peak this week with more than 110 companies scheduled to release their latest earnings reports by Friday. Among the earnings reports on tap this week are Chipotle Mexican Grill, Lockheed Martin, and Yahoo tomorrow, EMC and eBay on Wednesday, Microsoft, Google, and Amazon on Thursday, and Procter and Gamble on Friday.

Tonight after closing bell we’re expecting IBM to release its latest quarterly earnings report.

S&P 500 earnings expected to decline

S&P Capital IQ senior analyst Lindsey Bell has been keeping a close eye on estimates for the S&P 500 and each of its sectors. She noted at the beginning of third quarter earnings reporting season that this quarter is expected to bring the first earnings decline since 2009, and it’s still expected. However, the amount of the earnings decline appears to be shrinking.

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On Friday, she reported that aggregate third quarter earnings for the S&P 500 were at $28.51 per share, which would be a 5.14% year over year decline. Today, following earnings reports from Halliburton, Hasbro, Valeant Pharmaceuticals, and others, Bell reports that the aggregate estimate for the S&P 500’s earnings is now at $28.62 per share. That represents a 4.77% decline year over year.

It’s also an improvement of 64 basis points from one week ago today.

Hasbro, Halliburton, Morgan Stanley, Valeant

This morning’s earnings reports were disappointing across the board, with disappointments across multiple sectors, including Valeant Pharmaceuticals, Morgan Stanley, Halliburton and Hasbro. Shares of all four reporters slumped during regular trading hours today after they reported before opening bell this morning.

Hasbro beat in earnings, but sales came up a little light of Wall Street expectations. Investors had hoped that the new Star Wars movie’s upcoming release, which drove a 24% increase Boys’ sales, would more than offset the decline in the Girls’ toys, but Girls sales fell 28% year over year.

Halliburton also beat on earnings but missed on revenue, while Morgan Stanley missed on both earnings and revenue.

Most S&P 500 sectors showing growth

Currently seven of the ten sectors in the S&P 500 are showing earnings growth for the third quarter. At the top of the heap are Consumer Discretionary, Telecommunications and Healthcare. Here’s a look at the current growth expectations by sector:

As you can see, the Energy sector continues to be the least-favorite by far, with the expected 66.2% decline weighing on the entire S&P 500. The Materials and Consumer Staples sectors are also expected to post earnings declines, but Energy is the biggest problem by far. According to Bell, without the drag from Energy, the projected earnings growth for the S&P 500 would be +3.2%.

Beat rate falling

The analyst reports that of the 63 companies that have reported so far, 40 have beat estimates, 13 missed and 10 met. That sets the beat rate at 63% decline, which is now behind the 66% historic average. Here’s a look at the mix of earnings and revenue beats by percentage so far:


On Friday, Bell reported that the beat rate was at 69%, so this morning’s earnings reports weighed heavily on it. Here’s a look at Friday’s projections to compare them with today’s (which is above).


And here’s a look at how earnings growth estimates for the third and fourth quarters have developed throughout the year. Some of the sectors have changed dramatically as the year has worn on.


Charts in this article are courtesy S&P Capital IQ.

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