Hurricane Florence is expected to cause significant property damage and business losses across the southeast coast of the U.S. over the next few days. From a corporate earnings perspective, what sectors or industries in the S&P 500 are likely to see a negative impact from the hurricane?
One industry that will likely see a negative impact from Hurricane Florence is the Insurance industry, as companies in this industry will record catastrophic losses for the property damage caused by the storm. Last year, the S&P 500 Insurance industry witnessed a substantial decline in earnings for the third quarter after Hurricanes Harvey and Irma. From August 25 through November 10 in 2017, this industry saw a 68% decline in EPS (to $2.19 from $6.75). Over this same period, the S&P 500 Financials sector saw a 13% decline in EPS.
Because of the weak earnings reported by the Insurance industry in the third quarter of last year due to the hurricanes, this industry is now projected to report the highest year-over-year earnings growth of all the industries in the sector for the third quarter of this year at 249%. This industry is also projected to be the largest contributor to earnings growth for the sector. The Financials sector is expected to report earnings growth of 38% for the third quarter. If the Insurance industry were excluded, the expected earnings growth rate for the Financials sector would drop to 22%. Thus, any downward revisions to EPS estimates for companies in the Insurance industry due to the hurricane will also have a negative impact on expected earnings growth for the Financial sector overall.
It is interesting to note that last year there was about a two to three-week lag between the time the Hurricanes Harvey and Irma hit the U.S. and the substantial downward revisions to earnings estimates for companies in the Insurance industry by analysts. Given the timing of Hurricane Florence, any potential downward revisions to earnings estimates for companies in the Insurance industry may not occur until late September or early October.
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.