Metals & Mining estimate cuts dig hole for Materials earnings

During the past week, a couple of high-profile companies in the Materials sector (DuPont and Freeport McMoran) lowered guidance. The Materials sector has recorded the highest percentage cut (-26%) to share-weighted earnings for the fourth quarter of any sector in the index.  Within the sector, companies in sub-industries related to metals and mining have witnessed the highest percentage decreases in earnings since September 30: Aluminum (-76%), Diversified Metals & Mining (-52%), and Steel (-50%).

Overall, analysts and corporations have significantly tempered expectations for earnings growth for Q4 2011 for the S&P 500.  Since the start of the quarter, the estimated earnings growth rate for the S&P 500 has dropped to 12.6% today from 19.0% on September 30. On a percentage basis, share-weighted earnings for the quarter have fallen by 5.3% during this time. This 5.3% cut reflects the sharpest reduction in estimates through the first ten weeks of a quarter since Q2 2009 (-5.4%). In terms of EPS guidance, 84 companies have issued negative preannouncements for the current quarter.

The estimated earnings growth for the fourth quarter currently stands at 12.6%. If the final earnings growth rate is 12.6%, it will mark the ninth consecutive quarter of double-digit earnings growth for the index. The Financials sector is predicted to have the highest earnings growth (80%) and be the largest contributor to dollar-level earnings growth.  However, one company accounts for most of the growth in the Financials sector and more than half of the growth for the entire index: AIG.  If AIG is excluded from the index, the Q4 2011 earnings growth rate for the S&P 500 drops by more than 50%, from 12.6% to 5.1%.  Comparisons to weak year-ago earnings are driving the unusually high dollar-level growth for AIG.

During the next couple of weeks, the first few companies will report earnings for Q4 2011. During the upcoming week, ten companies in the S&P 500 are scheduled to report earnings for the fourth quarter.

Read more about expectations for Q4 2011 in this week's edition of FactSet Earnings Insight.

All of the data used to compile FactSet Earnings Insight is available in the FactSet workstation.