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Below Average Cuts to S&P 500 EPS Estimates for Q2 as Energy Estimates Rise

Earnings

By John Butters  |  May 6, 2019

During the month of April, analysts lowered earnings estimates for companies in the S&P 500 for the second quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) dropped by 1.0% (to $41.04 from $41.45) during this period. How significant is a 1.0% decline in the bottom-up EPS estimate during the first month of a quarter? How does this decrease compare to recent quarters?

During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.7%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.4%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.8%. Thus, the decline in the bottom-up EPS estimate recorded during the first month of the second quarter was smaller than the five-year, 10-year, and 15-year averages.

Change in Quarterly EPS

Change in Quarterly EPS vs Change in Price

Sector-Level Breakdown

At the sector level, eight sectors recorded a decline in their bottom-up EPS estimate during the first month of the quarter, led by the Industrials (-6.2%) sector. Within the Industrial sector, Boeing was a significant contributor to the decrease in earnings during the month of April. On the other hand, three sectors recorded an increase in their bottom-up EPS estimate during the first month of the quarter, led by the Energy (+11.1%) sector. Within the Energy sector, Chevron was a substantial contributor to the increase in earnings over this period. In addition, the price of oil (WTI) rose by 6.3% during the month of April. Overall, five sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their five-year average, four sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their 10-year average, and seven sectors recorded a smaller decrease (or an increase) in their bottom-up EPS estimate relative to their 15-year average.

As the bottom-up EPS estimate for the index declined during the first month of the quarter, the value of the S&P 500 increased during this same period. From March 31 through April 30, the value of the index increased by 3.9% (to 2945.83 from 2834.40). The second quarter marked the 14th time in the past 20 quarters in which the bottom-up EPS estimate decreased during the first month of the quarter while the value of the index increased over this same period.

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John Butters

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.

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