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S&P 500 Earnings Season Update: October 16, 2020

Written by John Butters | Oct 16, 2020

At this point in time, more S&P 500 companies are beating EPS estimates for the third quarter than average and beating EPS estimates by a wider margin than average. As a result, the index is reporting higher earnings for the third quarter today relative to the end of last week and relative to the end of the quarter. Despite the increase in earnings, the index is still reporting the second largest year-over-year decline in earnings since Q2 2009, mainly due to the negative impact of COVID-19 on numerous industries within the index. However, the S&P 500 is projected to report year-over-year earnings growth starting in Q1 2021.

Overall, 10% of the companies in the S&P 500 have reported actual results for Q3 2020 to date. Of these companies, 86% have reported actual EPS above estimates, which is above the five-year average of 73%. In aggregate, these companies are reporting earnings that are 21.7% above the estimates, which is also above the five-year average of 5.6%.

Due to the number and magnitude of these positive EPS surprises, the blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the third quarter is smaller now relative to the end of last week and relative to the end of the quarter. As of today, the S&P 500 is reporting a year-over-year decline in earnings of -18.4%, compared to a year-over-year decline in earnings of -20.4% last week and a year-over-year decline in earnings of -21.0% at the end of the third quarter. Positive earnings surprises reported by companies in the Financials sector were mainly responsible for the decrease in the overall earnings decline during the past week.

If -18.4% is the actual decline for the quarter, it will mark the second largest year-over-year decline in earnings reported by the index since Q2 2009 (-26.9%), trailing only the previous quarter. It will also mark the sixth time in the past seven quarters in which the index has reported a year-over-year decline in earnings. One sector (Health Care) is reporting year-over-year earnings growth. The other 10 sectors are reporting (or are predicted to report) a year-over-year decline in earnings, led by the Energy, Industrials, and Consumer Discretionary sectors.

In terms of revenues, 82% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 61%. In aggregate, companies are reporting revenues that are 3.6% above the estimates, which is also above the five-year average of 0.7%.

Due to the number and magnitude of these revenue surprises, the blended revenue decline for the third quarter is smaller now relative to the end of last week and relative to the end of the third quarter. As of today, the S&P 500 is reporting a year-over-year decline in revenues of -3.3%, compared to a year-over-year decline in revenues of -3.5% last week and a year-over-year decline in earnings of -3.6% at the end of the third quarter. Positive revenue surprises reported by companies in the Financials and Health Care sectors, partially offset by downward revisions to revenue estimates for companies in the Energy sector, were mainly responsible for the small decrease in the overall revenue decline during the past week.

If -3.3% is the actual decline for the quarter, it will mark the first time the index has reported two consecutive quarters of year-over-year revenue declines since Q1 2016 and Q2 2016. Six sectors are reporting (or are projected to report) year-over-year growth in revenues, led by the Health Care sector. Five sectors are reporting (or are predicted to report) a year-over-year decline in revenues, led by the Energy and Industrials sectors.

Looking at future quarters, analysts predict a (year-over-year) decline in earnings in the fourth quarter (-11.8%) of 2020. However, they are also project a return to earnings growth starting in Q1 2021 (14.1%).

The forward 12-month P/E ratio is 22.0, which is above the five-year average and above the 10-year average.

During the upcoming week, 96 S&P 500 companies (including eight Dow 30 components) are scheduled to report results for the third quarter.

Now you can listen to Earnings Insight on the go! In our new 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.