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Double-Digit Earnings Growth, High Profit Margin Projected for S&P 500 in 2018

Companies and Earnings

By John Butters  |  December 26, 2017

As of December 22, the estimated earnings growth rate for the S&P 500 for calendar year 2018 is 11.8%. If 11.8% is the final growth rate for the year, it will mark the highest annual earnings growth since 2011 (12.7%). It will also mark the first time index has reported double-digit earnings growth since 2011. All 11 sectors are projected to report year-over-year growth in earnings, led by the Energy, Materials, Financials, and Information Technology sectors.SPX Earnings and Revenue Growth 2011-2018.png

The Energy sector is expected to report the highest (year-over-year) earnings growth of all 11 sectors at 41.5%. At the sub-industry level, all six sub-industries in the sector are projected to report earnings growth: Oil & Gas Drilling (N/A due to year-ago loss), Oil & Gas Exploration & Production (300%), Oil & Gas Equipment & Services (65%), Oil & Gas Refining & Marketing (32%), Integrated Oil & Gas (23%), and Oil & Gas Storage & Transportation (20%).

The Materials sector is expected to report the second highest (year-over-year) earnings growth of all 11 sectors at 18.3%. At the industry level, all four industries in the sector are projected to report double-digit earnings growth: Construction Materials (33%), Metals & Mining (31%), Containers & Packaging (23%), and Chemicals (15%).

2018 SPX Earnings Growth.png

The Financials sector is expected to report the third highest earnings growth of all 11 sectors at 16.7%. At the industry level, all five industries in the sector are projected to report double-digit earnings growth: Diversified Financial Services (31%), Insurance (30%), Banks (14%), Consumer Finance (12%), and Capital Markets (12%).

The Information Technology sector is expected to report the fourth highest (year-over-year) earnings growth of all 11 sectors at 13.2%. At the industry level, all seven industries in this sector are projected to report earnings growth. Five of these seven industries are projected to report double-digit earnings growth: Internet Software & Services (21%), Technology Hardware, Storage, & Peripherals (16%), Semiconductors & Semiconductor Equipment (12%), IT services (11%), and Software (10%).

2018 Revenue Growth: 5.6%

The estimated (year-over-year) revenue growth rate for CY 2018 is 5.6%. All 11 sectors are expected to report year-over-year growth in revenues, led by the Information Technology sector.

2018 SPX Revenue Growth.png

The Information Technology sector is expected to report the highest (year-over-year) revenue growth of all 11 sectors at 10.4%. At the industry level, all seven industries in this sector are predicted to report revenue growth. Two of these seven industries are projected to report double-digit revenue growth: Internet Software & Services (20%) and Technology Hardware, Storage, & Peripherals (10%).

Highest Profit Margin (10.9%) Projected in 10 Years for 2018

Based on aggregate revenue and earnings estimates for the index, the projected net profit margin for the S&P 500 for CY 2018 is 10.9%. If 10.9% is the actual net profit margin for the year, it will mark the highest annual profit margin for the S&P 500 since FactSet began tracking aggregate earnings and revenue data for the S&P 500 in 2008. Nine of the 11 sectors are expected to see profit margins increase on a year-over-year basis in CY 2018.

SP 500 Net Profit Margin 2011-2018.png

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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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