Factset’s Earnings Insight, overseen by John Butters, who was responsible for Thomson Reuters, “This Week in Earnings” (TWIE) every week, prior to moving over to Factset, had an interesting comment in this week’s Earnings Insight:
Looking at the first half of 2015, analysts are now projecting year-over-year declines in both earnings and revenues for both Q1 and Q2 ’15, compared to expectations for earnings and revenue growth for both quarters back on December 31 ’14.
John goes on to say a lot of this (the decline) is Energy-sector related, but doesn’t quantify the Energy impact on the S&P 500 EPS as a whole.
Looking at ThomsonReuters (T/R), TWIE as of Friday, March 6th, T/R has the declines projected in their quarterly detail for the S&P 500 as a whole, but what I like about Thomson is that they break out quarterly sector growth rates for quarters Q4 ’14 (actual), through Q4 ’15.
Per Thomson, and for both q1 and Q2 ’15, Energy’s y/y expected “growth” rate is expected to be -63% (!), which if we simply assume that Energy is roughly 10% of the S&P 500 by earnings weight and market cap (the earnings weight has probably declined below 10%, while Energy’s market cap as a percentage of the entire S&P 500 is probably close to 10%), in both Q1 and Q2 ’15, Energy’s drag is roughly 6.3% on the S&P 500 earnings growth for that quarter.
That is a big hit, just from one sector.
Most bloggers that quote earnings detail use Factset’s Earnings Insight, and it is very good. I read it every week. However, Thomson’s TWIE, breaks out expected growth rates by sector, for the forward 5 quarters – in this case Q4 ’14 (most of the S&P 500 having reported Q4 ’14 earnings by now) and for the coming 4 quarters.
This is good info (in my opinion). Factset has other strength’s in terms of their detail, which will be detailed in another blog post.
Here is Thomson’s projected earnings growth rates for the S&P 500 (column 2), the expected Energy sector decline (column 3), and then the S&P 500 expected earnings growth rate, Ex-Energy (column 4). I dont mean to beat this topic into a coma, but we have to look at the S&P 500 earnings growth rates, with and without Energy:
- Q4 ’14: +6.8%, -21.5%, +9%
- Q1 ’15: -2.7%, -63,4%, +5%
- Q2 ’15: -0.1%, -63.1%, +6.2%
- Q3 ’15: +2.2%, -56.9%, +7.9%
- Q4 ’15: +6.5%, -34.6%, +10%
- 2015: +1.7%, -55%, +7.2%
Again, the key metric is the third column, or the S&P 500 expected earnings growth rates, ex-Energy. I am watching Q4 ’15’s estimates for the Energy sector specifically, since it will be the 4th quarter where we start to lap the dramatic drop in Crude Oil, in 2014. Although still a dramatic decline, note the severity of Energy’s earnings decline in Q4 ’15 relative to the first 3 quarters of 2015.
I feel like I am beating this subject into a coma, but the objective is to show readers what the S&P 500 earnings growth looks like by quarter, ex-Energy. If readers are wondering why the drop in Energy isn’t having the same impact on the S&P 500 as the Technology and Financial sector bear markets of 2001 – 2002, and 2007 – 2008, Energy isn’t close to what the market cap weight was of the S&P 500 that Tech was in March, 2000 (33%) and Financial’s August, 2007 (over 30%).
Here is the article from late February ’15 where I try to flush out Energy’s weight in the S&P 500 versus Tech in 2000 and Financials in 2007.
Summary / Conclusion: although Friday, March 6th’s strength in the dollar (post the Feb ’15 payroll report) could be another issue for the S&P 500 as a whole, given that about 50% of S&P 500 total revenue is now “non-US”, nothing has changed about our expectation that 2015 will be a relatively “normal” year for S&P 500 earnings at 7% – 9% (ex-Energy). Remember in 1994, S&P 500 earnings grew 19%, while the S&P 500 was flat to up 1% after Greenspan’s 5 rate hikes. We havent had a 20% correction in the S&P 500 since 2011, where peak-to-trough, the S&P 500 declined 21.6% (per our technical software).
A real Fed rate hike could do that in my opinion, i.e. give the S&P 500 its first real flush in 4 years.
Weekly S&P 500 Earnings metrics:
- Forward 4-quarter earnings estimate: $119.87
- Forward p.e ratio: 17.24(x)
- PEG ratio: 16.14(x) (again, excluding Energy’s drag, using 2015 full-year expected EPS of 7%, the “adjusted” PEG is 2.46(x)
- Earnings Yield: 5.80%
- Y/y growth of forward estimate: +1.07%
Looking at my roughly 15 year spreadsheet of earnings history, the “y/y growth rate of the forward estimate” did not turn negative in the Mortgage Crisis until late July, 2008. I only throw that metric out so readers have a mental comparison of the dramatic impact and drag that the Energy sector is exercising on the S&P 500 earnings growth today. I’m also starting to wonder if Energy estimates for 2015, haven’t become too pessimistic, but that is a blog post for another day.
Not one company followed or owned for clients reports this week. A lot of smaller retailers. United Natural Foods (NASDAQ:UNFI) reports Monday, March 9th, post the closing bell. Specialty grocery is the fastest growing segment of grocery proper, and the number of competitors has exploded. Basically, UNFI is the arms supplier in a giant shooting war, but the stock is never cheap enough to buy for clients.