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S&P 500 Reporting Record-High Profit Margin for Second Straight Quarter

Companies and Earnings

By John Butters  |  July 23, 2018

As of July 20, the blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings growth rate for the S&P 500 for Q2 2018 is 20.8%, and the blended revenue growth rate for the index is 9.0%.

During this earnings season, several companies in the S&P 500 have discussed rising costs during their earnings calls. Given this concern, what is the S&P 500 reporting for a net profit margin for the second quarter?

Net Profit Margins

The blended net profit margin for the S&P 500 for Q2 2018 is 11.6%. If 11.6% is the actual net profit margin for the quarter, it will mark a tie with the previous quarter (Q1 2018) for the highest net profit margin for the S&P 500 since FactSet began tracking this data in Q3 2008.

Quarterly Net Profit Margings

At the sector level, 10 sectors are reporting net profit margins for the second quarter that are above their five-year averages. Four sectors are reporting their highest net profit margins (or a tie for their highest net profit margins) since FactSet began tracking this data in Q3 2008: Consumer Staples (6.8%), Industrials (10.1%), Materials (11.5%), and Telecom Services (14.9%).

scetor level net profit margins

What is driving the higher net profit margins for the index? The reduction in the corporate tax rate due to the new tax law is likely a significant factor, as the lower tax rate has boosted earnings for companies in the index for the quarter. It appears the lower tax rate is more than offsetting the impact of rising costs, resulting in a record-level net profit margin for the index for the second quarter.

It is interesting to note that analysts expect even higher net profit margins for the remainder of 2018. Based on current earnings and revenues estimates, the estimated net profit margins for the third and fourth quarters of 2018 are 11.8% and 11.8%, respectively.

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.

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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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