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Senior Earnings Analyst
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.

For the fourth quarter, 87 companies in the S&P 500 have issued negative EPS guidance and 21 companies have issued positive EPS guidance. The number of companies issuing negative EPS is well above the 5-year average (74), while the number of companies issuing positive EPS guidance is well below the five-year average (36).

At the sector level, the Information Technology and Consumer Discretionary sectors are tied for the highest number of companies issuing negative EPS guidance for the quarter. This is not surprising, as these two sectors have historically had the highest number of companies providing quarterly EPS guidance on average.

What is surprising, however, is the unusually high number of companies in the Consumer Discretionary sector issuing negative EPS guidance for Q4. While the number of companies issuing negative EPS guidance in the Information Technology sector (24) is 11% above the five-year average (21.6) for the sector, the number of companies issuing negative EPS guidance in the Consumer Discretionary sector (24) is 73% above the five-year average for the sector (13.9).

If the final number of companies in this sector issuing negative EPS guidance is 24, it will be the highest number for this sector since FactSet began tracking guidance in 2006. The current record high is 22, which occurred in both Q1 2014 and Q2 2014. In addition, the number of companies in the Consumer Discretionary sector issuing positive EPS guidance is tied for a record low (with Q1 2006) at three.

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At the industry level, 13 of the 24 companies that have issued negative EPS guidance are in retail industries: Specialty Retail (8), Multiline Retail (3), and Internet & Catalog Retail (2).

So why has this sector seen a record high number of companies issue negative EPS guidance and a record low number of companies issue positive EPS guidance to date? With the combination of falling oil and gas prices and stronger U.S. GDP growth in recent quarters, the conditions appeared to be in place in Q4 for more companies in this sector to raise earnings expectations rather than to lower earnings expectations.

Seven of the 24 companies that issued negative EPS guidance in this sector specifically discussed lower oil and gas prices in relation to their guidance. All seven companies stated that they either had not seen a positive impact to date, or that the positive impact was being offset by other negative factors.

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Thus, for companies in the Consumer Discretionary sector that have issued negative EPS guidance for Q4, it appears the positive impact of lower gas prices has not materialized to date or has been offset by other factors. The chart below highlights factors that companies in this sector cited when issuing negative EPS guidance for Q4. The numbers do not add to 24, as some companies cited more than one of the factors listed below, while others did not highlight any specific factors.

Read more about the EPS guidance trends of the S&P 500 in this edition of FactSet Guidance Quarterly. Visitwww.factset.com/guidance to launch the latest report.

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