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Excluding Just Three Industries, S&P 500 Would Be Reporting Earnings Growth of 4% for Q3

Earnings

By John Butters  |  November 20, 2020

The S&P 500 is reporting a year-over-year decline in earnings of -6.3% for the third quarter. There are 63 industries within the S&P 500. Of these 63 industries, 27 are reporting a year-over-year decline in earnings for the third quarter. However, 36 are reporting year-over-year growth in earnings for the third quarter. The industries reporting the largest (year-over-year) dollar-level increases in earnings for the third quarter are the Interactive Media & Services (+$5.2 billion), Software (+$4.1 billion), and Automobiles (+$2.8 billion) industries.

No. of S&P 500 Industries Reporting Earnings Growth vs. Declines Q320

S&P 500 Q3 2020 Industry Earnings Growth Top 5

Given that more industries are reporting year-over-year growth in earnings than year-over-year declines in earnings, what is driving the year-over-year earnings decline of -6.3% for the entire index?

Industries Reporting Earnings Declines

The index is reporting a year-over-year decline in earnings because three industries are reporting unusually large year-over-year declines in earnings for the quarter. These three industries are the Oil, Gas, & Consumable Fuels industry, the Airlines industry, and the Hotels, Restaurants, & Leisure industry. All three industries have seen significant negative impacts to revenues and earnings due to COVID-19.

The Oil, Gas, & Consumable Fuels industry is reporting the largest (year-over-year) decline on a dollar-level basis (-$14.3 billion) and the third-largest (year-over-year) decline on a percentage basis (-113%) of all 63 industries. The Airlines industry is reporting the second-largest (year-over-year) decline on a dollar-level basis (-$13.0 billion) and the largest (year-over-year) decline on a percentage basis (-313%) of all 63 industries. The Hotels, Restaurants, & Leisure industry is reporting the third-largest (year-over-year) decline on a dollar-level basis (-$9.7 billion) and the second-largest (year-over-year) decline on a percentage basis (-133%) of all 63 industries.

S&P 500 Q3 2020 Industry Earnings Decline Top 5

These three industries are the largest contributors at the industry level to the year-over-year earnings decline for the S&P 500 as a whole. Combined, these three industries are reporting a larger decline in earnings (-$37.1 billion) than the aggregate earnings decline for the entire S&P 500 (-$22.7 billion). As a result, if these three industries were excluded, the S&P 500 would be reporting year-over-year growth in earnings of 4.3% instead of a year-over-year decline in earnings of -6.3%.

S&P 500 Q320 Earnings yoy ex. oil airlines and hotels industries

One sector that exemplifies the outsized impact on earnings growth of just one of these three industries is the Consumer Discretionary sector. Overall, the Consumer Discretionary sector is reporting a year-over-year decline in earnings of -4.2% for the third quarter. However, only three of the 10 industries in this sector are reporting a year-over-year decline in earnings, led by the Hotels, Restaurants, & Leisure industry. The other seven industries in this sector are reporting double-digit (year-over-year) earnings growth, led by the Automobiles (74%), Multiline Retail (65%), and Internet & Direct Marketing Retail (45%) industries. If the Hotels, Restaurants, & Leisure industry were excluded, the Consumer Discretionary sector would be reporting year-over-year earnings growth of 36.0% for the third quarter rather than a year-over-year decline in earnings of -4.2%.

Outlook for the Fourth Quarter and Beyond

Looking ahead to the fourth quarter, these three industries are again predicted to have the largest year-over-year declines in earnings on a dollar-level basis and on a percentage basis. These three industries are also expected to be the largest contributors to the year-over-year decline in earnings for the entire index for the quarter. As of today, the S&P 500 is projected to report a year-over-year decline in earnings of -10.6% in the fourth quarter. If the Oil, Gas, & Consumable Fuels, Airlines, and Hotels, Restaurants, & Leisure industries were excluded, the estimated year-over-year decline for the S&P 500 for Q4 would decrease to -3.2% from -10.6%.

However, it is interesting to note that analysts believe all three industries will see year-over-year improvements in dollar-level earnings in 2021 relative to 2020. Because of the expected losses in 2020 for all three industries, year-over-year growth rates for 2021 can’t be calculated on a percentage basis. On a dollar-level basis, the Oil, Gas, & Consumable Fuels industry is projected to report a $24.9 billion year-over-year increase in earnings in 2021 relative to 2020. The Airlines industry is projected to report a $26.1 billion year-over-year increase in earnings in 2021 relative to 2020 (though the industry is still projected to report an overall loss in 2021). The Hotels, Restaurants, & Leisure industry is projected to report a $15.5 billion year-over-year increase in earnings in 2021 relative to 2020.

Now you can listen to Earnings Insight on the go! In our new weekly Earnings Insight podcast, John Butters provides an update on S&P 500 corporate earnings and related topics based on his popular Earnings Insight publication. The podcast is made available every Monday—listen on Apple podcasts, Spotify, or factset.com.

Author’s Note: The FactSet Earnings Insight report will not be published next Friday (November 27). The next edition of the report will be published on December 4.

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John Butters

Vice President, Senior Earnings Analyst, Investor Relations

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His 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, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

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