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S&P 500 2018 Earnings Preview: Highest Earnings Growth in Eight Years

Companies and Earnings

By John Butters  |  December 21, 2018

As of today (December 21), the estimated earnings growth rate for CY 2018 is 20.3%. If 20.3% is the final growth rate for the year, it will mark the highest annual earnings growth for the index since 2010 (39.6%).  All 11 sectors are projected to report year-over-year growth in earnings. Nine of the 11 sectors are predicted to report double-digit earnings growth, led by the Energy, Materials, and Financials sectors.

Earnings Growth

REvenue Growth 2018

The Energy sector is expected to report the highest (year-over-year) earnings growth of all 11 sectors at 108.3%. Higher year-over-year oil prices are helping to drive the unusually high growth rate for the sector. Despite the recent decline in price, the average price of oil in CY 2018 ($65.44) to date is still 39% higher than the average price of oil in CY 2017 ($47.15). At the sub-industry level, all six sub-industries in the sector are projected to report earnings growth: Oil & Gas Drilling (N/A due to year-ago loss), Oil & Gas Exploration & Production (1,150%), Oil & Gas Refining & Marketing (71%), Integrated Oil & Gas (69%), Oil & Gas Storage & Transportation (65%), and Oil & Gas Equipment & Services (36%).

The Materials sector is expected to report the second highest (year-over-year) earnings growth of all 11 sectors at 30.5%. At the industry level, all four industries are projected to report earnings growth of at least 20%: Metals & Mining (50%), Containers & Packaging (41%), Chemicals (26%), and Construction & Materials (21%) industries.

The Financials sector is expected to report the third highest (year-over-year) earnings growth of all 11 sectors at 24.6%. At the industry level, all five industries are projected to report earnings growth of at least 20%: Diversified Financial Services (73%), Consumer Finance (33%), Capital Markets (24%), Insurance (22%), and Banks (21%).

Tax Reform Significant Contributor to High Earnings Growth in 2018

The tax reform law passed in late 2017 has been a significant contributor to earnings growth for the index in 2018, as the corporate tax rate was lower in 2018 relative to 2017. Shortly after the tax bill became law, analysts began raising company-level EPS estimates for 2018. From November 30, 2017 through February 28, 2018, the estimated earnings growth rate for CY 2018 increased by more than 7 percentage points (to 16.8% from 9.5%). During this same period over the past five years, the estimated (annual) earnings growth rate declined by more than 3 percentage points on average.  Over the first three quarters of 2018, the (aggregate) effective tax rate (income taxes divided by pretax income) for the S&P 500 has been 19.0%.  This compares to an (aggregate) effective tax rate of 25.7% over the first three quarters of 2017.

2018 Earnings Growth Vs the 5 Year Average

Earnings Revenue Growth

The estimated (year-over-year) revenue growth rate for CY 2018 is 8.9%. If 8.9% is the final growth rate for the year, it will mark the highest annual revenue growth for the index since 2011 (10.6%). All 11 sectors are expected to report year-over-year growth in revenues. Four of the 11 sectors are predicted to report double-digit growth, led by the Energy, Communication Services, and Materials sectors.

The Energy sector (along with the Communication Services sector) is expected to report the highest (year-over-year) revenue growth of all 11 sectors at 18.8%. At the sub-industry level, all six sub-industries in the sector are predicted to report revenue growth: Oil & Gas Drilling (33%), Integrated Oil & Gas (23%), Oil & Gas Exploration & Production (21%), Oil & Gas Refining & Marketing (17%), Oil & Gas Storage & Transportation (7%), and Oil & Gas Equipment & Services (5%).

The Communication Services sector (along with the Energy sector) is predicted to report the highest (year-over-year) growth rate of all 11  sectors at 18.8%. At the industry level, all four industries are expected to report revenue growth, led by the Interactive Media & Services (49%) and Media (11%) industries.

The Materials sector is expected to report the second highest (year-over-year) revenue growth of all 11 sectors at 16.2%. At the industry level, all four industries in this sector are predicted to report revenue growth, led by the Chemicals (19%) and Metals & Mining (16%) industries.

Records Broken in CY 2018

Several recent records for various earnings and revenue metrics were broken (or are projected to be broken) in CY 2018.  

  • 5.4% Increase in Q118 Bottom-Up EPS Estimate: Highest increase in (quarterly) bottom-up EPS estimate during a quarter since FactSet began tracking this metric in Q2 2002
  • 53 S&P 500 Cos. Issuing Positive EPS Guidance for Q118: Highest number of S&P 500 companies issuing positive EPS guidance for a quarter since FactSet began tracking this metric in Q1 2006
  • 80% Earnings Beat % in Q218: Highest percentage of S&P 500 companies reporting actual EPS above estimated EPS for a quarter since FactSet began tracking this metric in Q3 2008
  • 77% Revenue Beat % in Q118: Tied (with Q417) for highest percentage of S&P 500 companies reporting actual revenues above estimated revenues for a quarter since FactSet began tracking this metric in Q3 2008
  • 7.5% Earnings Surprise % in Q118: Highest aggregate difference between actual earnings and estimated earnings for a quarter since Q4 2010
  • 26.0% Earnings Growth in Q318: Highest quarterly (year-over-year) earnings growth reported by S&P 500 since Q3 2010
  • 10.5% Revenue Growth in Q218: Highest quarterly (year-over-year) revenue growth reported by S&P 500 since Q3 2011.
  • 12.0% Net Profit Margin in Q318: Highest quarterly net profit margin reported by S&P 500 since FactSet began tracking this metric in Q3 2008
  • 20.3% Earnings Growth in CY18 (projected): Would be highest annual earnings growth reported by S&P 500 since CY 2010.
  • 8.9% Revenue Growth in CY18 (projected): Would be highest annual revenue growth reported by S&P 500 since CY 2011

 

Earnings Revisions / Guidance: 2018

 

Quarterly EPS

Negative EPS

Positive EPS

 

Revision %

Guidance #

Guidance #

Q118

5.4%

52

53

Q218

0.7%

62

47

Q318

-1.1%

74

26

Q418

-3.4%

72

33

 

 

Earnings & Revenue Scorecard: 2018

 

Earnings

Revenue

Earnings

 

Beat %

Beat %

Surprise %

Q118

78%

77%

7.5%

Q218

80%

72%

5.2%

Q318

77%

62%

6.6%

Q418

88%

65%

2.8%

 

 

Earnings & Revenue Growth: 2018

 

Earnings

Revenue

Net Profit

 

Growth %

Growth %

Margin

Q118

24.8%

9.0%

11.6%

Q218

25.2%

10.5%

11.8%

Q318

26.0%

9.2%

12.0%

Q418

12.0%

6.1%

11.2%

CY18

20.3%

8.9%

11.5%

 

Download the latest Earnings Insight

John Butters

Senior Earnings Analyst

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.

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