Record Number of S&P 500 Companies issuing Positive EPS Guidance for Q1, Led By Tech

For the first quarter, 52 companies in the S&P 500 have issued negative EPS guidance and 53 companies in the S&P 500 have issued positive EPS guidance. The number of companies issuing negative EPS guidance is well below the five-year average (80), while the number of companies issuing positive EPS guidance is well above the five-year average (28).

If 53 is the final number for the quarter, it will mark the highest number of S&P 500 companies issuing positive EPS guidance for a quarter since FactSet began tracking this metric in Q2 2006. The current record for the number of S&P 500 companies issuing positive EPS guidance in a quarter is 47, which was set in Q2 2010.

At the sector level, the Information Technology (38) and Consumer Discretionary (24) sectors have the highest number of companies issuing EPS guidance for the first quarter. This is not surprising, as these two sectors have historically had the highest number of companies providing quarterly EPS guidance on average. What is surprising, however, is the unusually high number of companies issuing positive EPS guidance in the Information Technology sector.

The number of companies issuing positive EPS guidance in the Information Technology sector for Q1 2018 is 26, which is well above the five-year average (11) for the sector.

If the final number for the quarter is 26, it will mark the highest number of companies issuing positive EPS guidance in the Information Technology sector since FactSet began tracking EPS guidance in Q2 2006. The current record is 21, which set in Q3 2010.

Industry-Level Breakdown

At the industry level, 15 of the 26 companies that have issued positive EPS guidance in the Information Technology sector are in the Software (eight) or Semiconductor & Semiconductor Equipment (seven) industries.

What is driving the unusually high number of positive EPS preannouncements issued by companies in the Information Technology sector?

One factor driving the increase is the unusually high number of companies in this sector issuing positive revenue guidance. Overall, 28 companies in the Information Technology sector have issued positive revenue guidance for the first quarter. This number is well above the five-year average (17) for the sector. Of the 26 companies in this sector that have issued positive EPS guidance, 21 have also issued positive revenue guidance.

Another factor driving the increase in EPS guidance is the lower corporate tax rate for 2018 due to the recently passed tax law. A number of companies in this sector discussed the impact of the tax law on EPS guidance for Q1 2018 and CY 2018 during earnings calls or in earnings releases.

What are Industry Leaders Saying? 

“The new Tax Act is lowering Adobe’s effective tax rates, driving a significant increase in our earnings per share targets.” –Adobe Systems (Jan. 22)

“Turning to our outlook for the first quarter, we expect to have revenue in the range of $3.49 billion to $3.79 billion and earnings per share to be in the range of $1.01 to $1.17, which includes an estimated $30 million discrete tax benefit.” –Texas Instruments (Jan. 23)

“We expect a GAAP effective tax rate of approximately 26% for the second quarter and a non-GAAP effective tax rate at/or around 25%. We anticipate tax rates to remain at/or around these levels for the remainder of fiscal 2018, and we'll continue to update on a quarterly basis. And while we are not yet providing tax rate guidance for fiscal year 2019, it is worth noting that we would expect another small step-down in both our GAAP and non-GAAP tax rates in fiscal year 2019 and beyond, reflecting full calendar year impact from the new tax legislation. Our Q2 GAAP earnings target is $1.66 to $1.69 per share. Our non-GAAP earnings target is $2.24 to $2.27 per share.” –F5 Networks (Jan. 24)