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Largest Cuts to EPS Estimates for S&P 500 Companies for Q3 2022 in More Than Two Years

Earnings

By John Butters  |  September 30, 2022

Given the decline in U.S. GDP in the first quarter and the second quarter, did analysts lower EPS estimates more than normal for S&P 500 companies for the third quarter?

The answer is yes. During the third quarter, analysts lowered EPS estimates for the quarter by a larger margin than average. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q3 for all the companies in the index) decreased by 6.6% (to $55.51 from $59.44) from June 30 to September 29.

In a typical quarter, analysts usually reduce earnings estimates during the quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 2.3%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.3%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.8%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.8%.

Thus, the decline in the bottom-up EPS estimate recorded during the third quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average. The third quarter also marked the largest decrease in the bottom-up EPS estimate during a quarter since Q2 2020 (-37.0%).

At the sector level, ten of the eleven sectors witnessed a decrease in their bottom-up EPS estimate for Q3 2022 from June 30 to September 29, led by the Materials (-14.9%), Communication Services (-13.1%), and Consumer Discretionary              (-11.9%) sectors. On the other hand, the Energy (+7.9%) sector is the only sector that recorded an increase in its bottom-up EPS estimate for Q3 2022 during the quarter.

While analysts were decreasing EPS estimates in aggregate for the third quarter, they were also decreasing EPS estimates in aggregate for the fourth quarter. The bottom-up EPS estimate for the fourth quarter declined by 4.5% (to $58.01 from $60.73) from June 30 to September 29.  

Given the decreases in the bottom-up EPS estimates for the third quarter and the fourth quarter, which were partially offset by the increase in the bottom-up EPS estimate for the second quarter (due to upward revisions to EPS estimates and positive EPS surprises) analysts also decreased EPS estimates for all of 2022 during this period. The CY 2022 bottom-up EPS estimate declined by 2.3% (to $224.38 from $229.60) from June 30 to September 29.

At the sector level, nine sectors witnessed a decrease in their bottom-up EPS estimate for CY 2022 from June 30 to September 29, led by the Consumer Discretionary (-8.8%) and Communication Services (-8.5%) sectors. On the other hand, two sectors witnessed an increase in their bottom-up EPS estimate for CY 2022 during this time, led by the Energy (+11.4%) sector.

In addition, analysts lowered earnings estimates for CY 2023 during this time, as the bottom-up EPS estimate for CY 2023 decreased by 3.5% (to $241.83 from $250.60) from June 30 to September 29.

 

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This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

 

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John Butters

Vice President, Senior Earnings Analyst

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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The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.