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Slow Down in Energy Sector Cuts Aids in Q2 Earnings Estimate Cuts

By John Butters, Senior Earnings Analyst
May 1, 2015

During the month of April, analysts lowered earnings estimates for companies in the S&P 500 for the second quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the estimates for all the companies in the index) dropped by 1.9% (to $28.83 from $29.39) during the month. How significant is a 1.9% decline in the bottom-up EPS estimate during the first month of the quarter? How does this decrease compare to recent quarters?

In terms of price, the value of the S&P 500 increased by 0.9% (to 2085.51 from 2067.89) during the month of April. This quarter marked the ninth time in the past 16 quarters that the bottom-up EPS estimate decreased while the price of the index increased during the first month of the quarter.

During the past year (four quarters), the average decline in the bottom-up EPS estimate during the first month of the quarter has been 2.6%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of the quarter has been 1.3%. During the past 10 years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of the quarter has been 2.0%. Thus, the decline in the bottom-up EPS estimate recorded during the course of the first month (April) of the second quarter was lower than the one-year average and the 10-year average, but above the five-year average.

The percentage decline in the bottom-up EPS estimate to date for Q2 is also lower than the percentage decline in the bottom-up EPS estimate recorded during the first month of Q1 (-6.2%). However, the decline recorded during the first month of Q1 was the largest percentage decrease in the bottom-up EPS estimate for the first month of a quarter since Q1 2009 (-20.2%). The difference between the percentage declines for the first quarter and the second quarter can be mainly attributed to the Energy sector. During the first month of Q1 2015 (January), the bottom-up EPS estimate for the Energy sector fell by 44.5%. During the first month of Q2 2015 (April), the bottom-up EPS estimate for the Energy sector fell by 4.8%.

Read more about earnings trends in this edition of FactSet Earnings Insight. Visit www.factset.com/earningsinsight to launch the latest report.

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