Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

What to watch in third quarter earnings from U.S. companies

Stock Markets Oct 13, 2019 12:25PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Traders work on the floor at the NYSE in New York

By Lewis Krauskopf and Caroline Valetkevitch

NEW YORK (Reuters) - U.S. companies are preparing to report third-quarter results following a rocky few months in which they grappled with a U.S.-China trade conflict undermining the business environment and an overall economy that has been showing signs of struggling.

Earnings among S&P 500 earnings for the July-September period look set to mark the weakest performance in about three years, with respect to year-over-year quarterly changes.

Analysts are forecasting a 3.2% decline in earnings for the quarter from a year ago, based on IBES data from Refinitiv, although given the historic trend that many companies' earnings will surpass analyst estimates, the quarter could end in positive territory.

"Investors may start to think that the worst of the earnings comparisons are behind us, and if the consensus emerges that we've passed the earnings trough in terms of year-over-year growth, that would be a positive for the market," said Bucky Hellwig, senior vice president at BB&T (NYSE:BBT) Wealth Management in Birmingham, Alabama.

(GRAPHIC: US S&P 500 profit performance since 2015 - https://fingfx.thomsonreuters.com/gfx/mkt/12/7256/7187/Pasted%20Image.jpg)

Sector-wise, a rough quarter is expected for technology companies, whose shares have led the market's ascent this year but overall are seen posting a 7.6% drop in third-quarter earnings, with Micron (NASDAQ:MU) Technology's results expected to be a particularly big drag on the group, according to Refinitiv.

Materials and energy, two cyclical sectors that are particularly sensitive to the overall economy as well as the trade dispute, also are forecasted to post big year-over-year declines in earnings. The biggest U.S. banks are also expected to report a slight earnings dip.

(GRAPHIC: Expected third-quarter results by sector - https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-RESULTS-OUTLOOK/0H001QXCG8VJ/eikon.png)

"Negative S&P 500 EPS growth in 3Q will be driven by sectors with the highest international revenue exposure," David Kostin, chief U.S. equity strategist at Goldman Sachs (NYSE:GS), said in a report.

Trade tensions took center stage last week with a delegation from China in Washington for talks to find a resolution to their 15-month trade dispute.

During the second quarter, 17% of S&P 500 companies mentioned negative impacts from the tariffs, according to Bank of America Merrill Lynch (NYSE:BAC) strategists.

An equal-weighted basket of companies impacted by the trade war, created by Barclays (LON:BARC), has underperformed the S&P 500 since the end of the second quarter through Thursday.

(GRAPHIC: Trade-exposed stocks lag - https://fingfx.thomsonreuters.com/gfx/mkt/12/7260/7191/Pasted%20Image.jpg)

Uncertainty about the economy and trade situation means that analysts are expecting companies will be cautious with their big investments in buildings and equipment. Capital expenditures are expected to have increased just 2.8% in the third quarter from a year ago, which would be the lowest since the second quarter of 2017, when capex declined slightly, according to data compiled by Refinitiv.

"Capex has been and is likely to remain anemic," BofA strategists wrote in their note.

(GRAPHIC: U.S. capital spending growth wanes - https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-RESULTS-OUTLOOK/0H001QXCR8WD/eikon.png)

One issue that could confront large U.S. companies that derive much of their revenue from abroad is the stronger U.S. dollar. Since the end of the third quarter of 2018, the dollar strengthened more than 6% against the euro through the end of the third quarter this year, a potential pressure point as U.S. companies translate foreign earnings into the U.S. currency.

Data from cloud treasury and finance firm Kyriba found that North American companies reported a $23.39 billion collective negative impact in the first quarter related to currency, the highest level since the fourth quarter of 2015.

(GRAPHIC: Currency and earnings - https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-RESULTS-OUTLOOK/0H001QXCF8VF/eikon.png)

Companies new to public scrutiny are also in sharper relief this reporting season after the parent of office-sharing startup WeWork pulled its initial public offering. The company ousted its chief executive and failed to excite investors who raised concerns about its burgeoning losses.

Among other high-profile companies that recently held IPOs, ride-hailing company Lyft Inc (NASDAQ:LYFT) is expected to report quarterly results on Oct. 30, followed by rival Uber Technologies (NYSE:UBER) Inc, and later by workplace messaging firm Slack Technologies Inc and online pet products retailer Chewy Inc.

(GRAPHIC: Unicorn stampede on Wall Street - https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-RESULTS-OUTLOOK/0H001QXCF8VF/eikon.png)

What to watch in third quarter earnings from U.S. companies
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email