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Earnings and Revenue Following Economic and Market Accounts

Back in September 2015, FactSet estimated that EPS for the S&P 500 would grow by almost 5% in Q1 2016. Their latest update is now -6.9%. Energy, of course, gets most of the blame but according to their latest breakdown it is widespread if of a smaller magnitude. For Q4, earnings are on track to contract by about 4%, and of the ten industry sectors six are to be negative. In fact, huge earnings growth in telecom services is fully offsetting the drag from energy, leaving the vast middle to be that negative muddle.

Even financials, which FactSet estimated at the end of 2015 would report a sound 8% EPS growth in Q4, is now less than two months later cut to barely positive, just 0.4%. On the revenue side, five of the ten sectors are still contracting with one important sector, consumer staples, now at zero. That leaves full-year EPS at -0.5% (with a huge downward bias at the end of the year extending already at least two quarters into 2016) and full-year revenue of -3.5%. The trends are disturbing not necessarily yet in magnitude but persistence:

The blended earnings decline for Q4 2015 is -3.6%. If this is the final earnings decline for the quarter, it will mark the first time the index has seen three consecutive quarters of year-over-year declines in earnings since Q1 2009 through Q3 2009. It will also mark the largest year-over-year decline in earnings since Q3 2009 (-15.5%)…


The blended revenue decline for Q4 2015 is -3.7%. If this is the final revenue decline for the quarter, it will mark the first time the index has seen four consecutive quarters of year-over-year revenue declines since Q4 2008 through Q3 2009.

Again, with revenue and EPS expected to decline further in Q1, that will make at least four straight quarters of EPS contraction and five for revenue. Currently, analysts are not predicting positive growth in either until Q3, but that is as tenuous as the once much more robust predictions for right now.

S&P Capital IQ, for example, was also as late as the end of September (even after all the August messiness and ongoing uncertainty) projecting slightly positive EPS growth in Q4 and then much better throughout the start and rest of 2016.

However, we believe estimated EPS growth of 0.5% for all of 2015 will be supported by an improving domestic economic environment and a reduction in input costs (ex. gasoline and agricultural inputs). We look for improving demand in a steadily expanding domestic macroeconomic environment along with greater drug utilization from an aging U.S. population, an acceleration in food inflation, lower fuel pressures and a continued focus on cost cutting to support EPS growth in the fourth quarter and into 2016.

They chose to ignore everything in order to follow the mainline narrative. Last January, S&P Capital IQ was calling for almost 12% growth for the S&P 500 overall in both Q3 2015 and FY2015. The reason for that optimism was nothing other than “transitory”, which marks the baseline for all these unraveling forecasts.

In their April 2015 projections they had Q1 2016 EPS growth accelerating to 15.1%, and were still looking for +5% as late as October; they now suggest -2.5%. Estimates for future quarters are also coming down and rapidly: last April and July they expected Q2 2016 EPS growth of more than 13%; down to 6.78% in October and just 1.25% currently. For Q3 2016: also more than 13% at both the April and July estimates, shooting higher to almost 15% at the October update, though now down to 7.22%. Current market disruptions (subscription required) suggest only that these downgrades are far from over.

It seems very clear that recent economic estimates as well as market turmoil are being further validated by showing up in earnings and revenue forecasts; in other words, hard figures as opposed to something like the unemployment rate. While the start to 2015 was rough, the end was rougher and perhaps more significant in a systemic sort of way. That would strongly imply, again, the intensification and broadening of market disruption globally starting in July was very “real” and very revealing.