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Largest Decrease in EPS Estimates for S&P 500 Companies Since Q2 2020

Written by John Butters | Mar 4, 2022

During the first two months of the first quarter, analysts decreased earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q1 for all the companies in the index) decreased by 1.2% (to $51.62 from $52.22) during this period How significant is a 1.2% decrease in the bottom-up EPS estimate during the first two months of a quarter? How does this decrease compare to recent quarters?

Smaller-Than-Average Decline in Q1 Earnings Estimate for the S&P 500

In a typical quarter, analysts usually reduce earnings estimates during the first two months of a quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.0%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.7%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.5%.

Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the first quarter was smaller than the five-year average, the 10-year average, and the 15-year average.

However, it should be noted that the first quarter also marked the largest decrease in the bottom-up EPS estimate during the first two months of a quarter since Q2 2020 (-35.9%), when there were widespread lockdowns in the U.S. due to COVID-19.

As the bottom-up EPS estimate for the index decreased during the first two months of the quarter, the value of the S&P 500 also decreased during this same period. From December 31 through February 28, the value of the index declined by 8.2% (to 4373.34 from 4766.18). The first quarter marked the fifth time in the past 20 quarters (five years) in which both the (quarterly) bottom-up EPS estimate and the value of the index declined over the first two months of the quarter.

Most Sectors Are Seeing Earnings Estimate Reductions

At the sector level, eight sectors recorded a decline in their bottom-up EPS estimate for Q1 during the first two months of the quarter, led by the Industrials (-11.3%) and Consumer Discretionary (-7.6%) sectors.

In the Industrials sector, the Airlines (-84%), Industrial Conglomerates (-11%), and Aerospace & Defense (-10%) industries witnessed the largest declines in their bottom-up EPS estimates for Q1 2022 of all 12 industries in the sector over the first two months of the quarter.

In the Consumer Discretionary sector, the Hotels, Restaurants, & Leisure (-83%), Leisure Products (-24%), and Internet & Direct Marketing Retail (-10%) industries saw the largest declines in their bottom-up EPS estimates for Q1 2022 of all 10 industries in the sector over the first two months of the quarter.

On the other hand, three sectors recorded an increase in their bottom-up EPS estimates for Q1 during this period, led by the Energy (+14.5%) sector.

Impact of Rising Oil Prices on the Energy Sector

Rising oil prices are helping to drive the increase in expected earnings for the Energy sector, as the price of oil increased by 27% (to $95.72 from $75.21) from December 31 to February 28. Earnings estimates for the Energy sector and the price of oil are highly correlated. Over the past 20 years, the correlation coefficient between the daily forward 12-month EPS estimate for the Energy sector and the daily price of oil (WTI) is 0.89 (where 1.0 is a perfect positive linear relationship). The Energy sector also recorded the largest increase of in its forward 12-month EPS estimate (+10.6%) of all 11 sectors over the first two months of the quarter.

Listen to Earnings Insight on the go! In our 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.

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