Q2 Sees Lowest EPS Estimate Cuts In Three Years

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It’s not uncommon for analysts to trim their earnings per share (EPS) estimates for companies. However, analysts appear to be the most optimistic about the second quarter of this year. Data from FactSet shows that the second quarter bottom-up estimate fell 1.5% from $29.45 to $29.01 per share. The firm describes this number as “an aggregation of the estimates for all [S&P] 500 companies in the index.”

Q2 EPS estimate cuts less than half of average

According to FactSet, over the last four quarters, the average EPS estimate decline in each quarter has been 3.9%. In the last 20 quarters, the average decline was 2.9%, while during the last 40 quarters, the average decline was 4.6%. This means that not only was the second quarter’s 1.5% decline better than the average decline over the last year, but als over the trailing 5-year and 10-year averages.

The firm reports that this is the smallest percentage quarterly decline since the first quarter of 2011 when the bottom-up estimate slumped by just .6%, from $22.20 to $22.08 per share.

EPS estimates slump but index value rises

Even though analyst estimate cuts were smaller than the average, FactSet reports that expected earnings for the S&P 500 still fell during the second quarter. Meanwhile the S&P 500 (INDEXSP:.INX)’s value rose 4.5% from $1,872.34 to $1,957.22.

The firm says it isn’t unusual for the index’s value to increase while analysts are cutting their EPS estimates, however. This has happened in 14 of the last 20 quarters, including the second quarter of this year. During those 14 quarters, the average decline in the bottom-up earnings per share was 2.9%. The average increase in the index’s value was 7.2%.

Here’s a look at how these numbers compared throughout the second quarter (graph courtesy of FactSet):

Company EPS estimate guidance declines

FactSet reports that 111 S&P 500 companies have issued second quarter earnings per share guidance. Of those companies, 84 of them issued negative guidance, while 27 issued positive guidance. This means that the percentage of companies guiding to the negative is 76%, which is higher than the five-year average of 66%. However, it’s lower than the 84% recorded in the previous quarter and the 88% recorded in the fourth quarter of 2013.

The estimated growth rate for earnings in the second quarter is 5.1%. Nine out of the ten sectors are expected to post higher earnings compared to a year ago. FactSet reports that the leaders are Telecom Services, Consumer Discretionary, Materials and Energy. The Financials sector is the only one expected to post lower earnings compared to a year ago.

Revenue growth expected

FactSet reports that the estimated revenue growth rate for the second quarter is 2.9%. That’s lower than the 3.5% estimated growth rate on March 31. Nine out of ten sectors are projected to post growth in revenue for the second quarter, with the Health Care sector being the leader. The Energy sector is the only one expected to post declining revenue for the second quarter.

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