S&P 500 CY 2020 Earnings Preview: Largest Year-Over-Year Earnings Decline Since 2008

CY 2020 Earnings Decline: -13.7%

The estimated (year-over-year) earnings decline for the S&P 500 for CY 2020 is -13.7%, which is below the 10-year average (annual) earnings growth rate of 10.0%. If -13.7% is the actual decline for the year, it will mark the largest annual earnings decline reported by the index since CY 2008 (-25.5%). The unusually large decrease in earnings can be attributed to the negative impact of COVID-19 on a number of industries in the index. At the sector level, four sectors are projected to report year-over-year growth in earnings, led by the Health Care sector. Seven sectors are expected to report a year-over-year decline in earnings, led by the Energy, Industrials, Consumer Discretionary, and Financials sectors.

The Health Care sector is expected to report the highest (year-over-year) earnings growth of all 11 sectors at 10.5%. At the industry level, five of the six industries in this sector are predicted to report year-over-year growth in earnings. Four of these five industries are projected to report double-digit earnings growth: Life Sciences Tools & Services (25%), Biotechnology (15%), Health Care Providers & Services (11%), and Pharmaceuticals (11%).

The Energy sector is expected to report the highest (year-over-year) earnings decline of all 11 sectors at -107.2%. Lower oil prices are helping to drive the decline in earnings for the sector, as the average price of oil in CY 2020 to date ($38.85) is 32% lower than the average price of oil in CY 2019 ($57.04). At the sub-industry level, all five sub-industries in the sector are projected to report a decline in earnings. Three of these sub-industries are predicted to report a decline in earnings of more than 100%: Oil & Gas Refining & Marketing (-137%), Integrated Oil & Gas (-124%), and Oil & Gas Exploration & Production (-108%).

The Industrials sector is expected to report the second-largest (year-over-year) earnings decline of all 11 sectors at -48.4%. At the industry level, eight of the 12 industries in this sector are expected to report a decline in earnings. Five of these eight industries are expected to report a double-digit decline in earnings: Airlines (-345%), Industrial Conglomerates (-35%), Machinery (-22%), Electrical Equipment (-15%), and Road & Rail (-10%). The Airlines industry is also projected to be the largest contributor to the year-over-year decline in earnings for the sector. If the five companies in this industry were excluded, the estimated earnings decline for the sector would improve to -14.2% from -48.4%.

The Consumer Discretionary sector is expected to report the third largest (year-over-year) earnings decline of all 11 sectors at -33.4%. At the industry level, six of the 10 industries in this sector are expected to report a decline in earnings. Five of these six industries are projected to report a double-digit decline in earnings: Hotels, Restaurants, & Leisure (-139%), Auto Components (-49%), Automobiles (-42%), Textiles, Apparel, & Luxury Goods (-25%), and Leisure Products (-11%). On the other hand, four industries in this sector are expected to report earnings growth, led by the Multiline Retail (36%) and Household Durables (16%) industries.

The Financials sector is expected to report the fourth largest (year-over-year) earnings decline of all 11 sectors at -26.1%. At the industry level, four of the five industries in this sector are expected to report a decline in earnings. Two of these four industries are projected to report a double-digit decline in earnings: Consumer Finance (-67%) and Banks (-41%). The only industry in this sector expected to report earnings growth is the Capital Markets (6%) industry.

CY 2020 Revenue Decline: -1.8%

The estimated (year-over-year) revenue decline for CY 2020 is -1.8%, which is below the 10-year average (annual) revenue growth rate of 4.5%. If -1.8% is the actual decline for the year, it will mark the largest annual revenue decline for the index since CY 2015 (-3.6%). The decrease in revenues can be attributed to the negative impact of COVID-19 on a number of industries in the index. At the sector level, five sectors are expected to report year-over-year growth in revenues, led by the Health Care sector. Six sectors are expected to report a year-over decline in revenues, led by the Energy and Industrials sectors.

The Health Care sector is expected to report the highest (year-over-year) revenue growth of all 11 sectors at 8.9%. At the industry level, five of the six industries in this sector are predicted to report year-over-year growth in revenues. Two of these five industries are projected to report double-digit revenue growth: Biotechnology (17%) and Life Sciences Tools & Services (11%).

The Energy sector is expected to report the highest (year-over-year) revenue decline of all 11 sectors at -33.8%. Lower oil prices are helping to drive the decline in revenues for the sector, as the average price of oil in CY 2020 to date ($38.85) is 32% lower than the average price of oil in CY 2019 ($57.04). At the sub-industry level, all five sub-industries in the sector are projected to report a double-digit decline in revenues. Three of these sub-industries are predicted to report a decline in revenues of more than 30%: Oil & Gas Refining & Marketing (-39%), Oil & Gas Exploration & Production (-39%), and Integrated Oil & Gas (-32%).

The Industrials sector is expected to report the second-largest (year-over-year) revenue decline of all 11 sectors at -13.1%. At the industry level, 11 of the 12 industries in this sector are expected to report a decline in revenues. Four of these 11 industries are expected to report a double-digit decline in revenues, led by the Airlines (-63%) industry. The Airlines industry is also projected to be the largest contributor to the year-over-year decline in revenues for the sector. If the five companies in this industry were excluded, the estimated revenue decline for the sector would improve to -6.2% from -13.1%.

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