Jun 17, 2020 - Economy

Second-quarter S&P 500 earnings could decline by more than 40%

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Second-quarter S&P 500 earnings are expected to decline by 43.5%, with revenues falling by 11.5%, according to FactSet, the largest year-over-year drop since Q4 2008 (-69.1%).

By the numbers: Estimated earnings per share for the second quarter have decreased by 36.2% since March 31.

  • That's more than 10 times the five-year average and the largest decrease in a quarter since FactSet began tracking the data in 2002.

The earnings picture is being clouded by a lack of forward guidance.

  • Through Friday, 183 S&P 500 companies had withdrawn or confirmed a previous withdrawal of annual EPS guidance for fiscal year 2020, FactSet senior earnings analyst John Butters said in a note.
  • Only 48 companies have issued guidance for Q2 — with 27 providing negative EPS guidance and 21 issuing positive ones — less than half of the five-year average for a quarter (107).
  • Even with the small sample size, the percentage of companies issuing positive guidance (56%) is well below the five-year average of 69%.

On the other side: As EPS estimates have fallen, price-to-earnings ratios have skyrocketed toward record highs.

  • The 12-month forward P/E ratio for the S&P 500 is 21.2, significantly above the 5-year average (16.8) and 10-year average (15.1) for the index.

Between the lines: The one sector in the S&P 500 that has not seen a significant negative impact to earnings guidance is utilities.

  • Utilities were, by far, the sector with the highest number of companies to confirm previous EPS guidance for 2020 and are projected to have the highest year-over-year earnings growth of all eleven sectors at 2.4%.

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