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Downward estimate revisions for first month of Q4 on pace with recent averages

Nov 2, 2012

Change in S&P 500 Bottom-Up EPS Estimate in First Month of the Quarter: 5-YearS&P 500 Companies and analysts have lowered expectations for Q4 2012. In terms of preannouncements, 56 companies have issued negative EPS guidance for Q4 2012, while just 18 companies has issued positive EPS guidance. Analysts have lowered their growth estimates for Q4 2012 since the end of the third quarter (to 6.4% from 9.5%). However, the pace of estimate cuts have not been unusually high. During the month of October, the bottom-up EPS estimate for Q4 dropped by 2.7%. This decline is actually consistent with average decrease for the first month of a quarter recorded over the past four quarters (-2.7%) and the past five years (-2.7%).

Of the 350 companies that have reported earnings to date for the third quarter, 70% have reported earnings above estimates. This percentage is equal to the average of 70% recorded over the past four quarters. However, only 40% of companies have reported sales above estimates. This percentage is well below the average of 55% recorded over the past four quarters. If 40% is the final percentage, it will mark the lowest percentage of companies reporting sales above estimates for a quarter since Q1 2009 (36%).

The blended earnings growth rate for Q3 2012 improved this week to -0.5% from -1.3%. Upside earnings surprises reported by companies in the Energy sector (including Exxon Mobil and Phillips 66) were responsible for the increase in the growth rate during the week. Since the end of the quarter (September 30), seven of the ten sectors have recorded an increase in earnings growth, led by the Financials and Energy sectors.

If the final earnings growth rate is -0.5%, it will mark the end of the streak of consecutive quarters of earnings growth for the index at eleven. Five of the ten sectors are reporting a decline in earnings growth for the quarter, led by the Materials (-23.4%) and Energy (-16.5%) sectors. Although eight of the ten sectors are reporting revenue growth for the quarter, the blended sales growth rate for the index is -0.9%. The Energy (-15.7%) and Materials (-6.2%) sectors are the only two sectors reporting sales decreases. Slower economic growth in Europe and emerging markets countries (China) and less favorable foreign-exchange rates had a negative impact on both top-line and bottom-line growth for many multi-national companies in the index in the third quarter.

The upcoming week marks the final peak week of the Q3 2012 earnings season, as one Dow 30 component (Walt Disney) and 66 S&P 500 companies are scheduled to report earnings during the week.

Read more about the earnings trends of the S&P 500 in this week's edition of FactSet Earnings Insight. Visit www.factset.com/earningsinsight to launch the latest report.  

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