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S&P 500 Reporting Lowest Net Profit Margin Since 2009

Written by John Butters | Jul 20, 2020

For the second quarter, the S&P 500 is reporting a year-over-year decline in earnings of -44.0% and a year-over-year decline in revenues of -10.5%. Given the substantial decrease in earnings, what is the S&P 500 reporting for a net profit margin in the second quarter?

The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) net profit margin for the S&P 500 for Q1 2020 is 7.1%, which is below the five-year average of 10.6%. If 7.1% is the actual net profit margin for the quarter, it will mark the lowest net profit margin reported by the index since Q4 2009 (6.8%).

At the sector level, all 11 sectors are reporting (or are projected to report) a year-over-year decline in their net profit margins in Q2 2020, led by the Financials (8.0% vs. 17.7%) and Industrials (1.3% vs. 9.0%) sectors. Nine sectors are reporting (or are projected to report) net profit margins that are below their five-year averages, led by the Industrials (1.4% vs. 9.0%) and Financials (8.0% vs. 15.3%) sectors. It should be noted that both the Energy and Consumer Discretionary sectors are predicted to report losses for the quarter, so a net profit margin can’t be calculated for these two sectors (due to negative earnings). For this analysis, the two sectors are counted as reporting (or projected to report) net profit margins below both their year-ago and five-year average net profit margins due to the expected losses.

Analysts do believe net profit margins will improve on a sequential basis after the second quarter. Based on current estimates, the estimated net profit margins for Q3 2020, Q4 2020, and Q1 2021 are 9.1%, 9.7%, and 10.2%. However, analysts are not projecting year-over-year improvement in net profit margins until Q1 2021.

To maintain consistency, the earnings and revenue numbers used to calculate the earnings and revenue growth rates published in this report were also used to calculate the index-level and sector-level net profit margins for this analysis. In addition, all year-over-year comparisons for Q2 2020 to Q2 2019 (and all other year-over-year comparisons for historical quarters) reflect an apples-to-apples comparison of data at the company level.