Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
- With more than 92% of the Q3 results already out, earnings growth for the quarter is on track to turn positive despite the significant Energy sector drag. This positive earnings growth in Q3 comes after three back-to-back quarters of declines.
- While Q3 results have been better than expected, there is a notable acceleration in negative estimate revisions for Q4 over the last few weeks, a development that reverses the largely favorable revisions trend of the preceding six months.
- The aforementioned negative revisions trend is broad-based, with Q4 estimates getting cut for 12 of the 16 Zacks sectors since the quarter began.
- Sectors suffering the biggest declines to estimates include Autos, Medical, Consumer Discretionary, Transportation, Basic Materials and Aerospace. On the positive side, estimates have modestly increased for the Utilities, Energy, Retail, and Industrial products sectors.
With results from nearly 93% of S&P 500 members already out, we can confidently say that the overall earnings picture remains stable and largely positive. Earnings growth for the S&P 500 index, which was negative for each of the preceding three quarters, is on track to turn positive in Q3, with the growth pace expected to steadily improve in the coming periods.
One major sector whose results really stood out this earnings season has been the Tech sector, with Q3 earnings for the sector on track to increase +20.8% from the same period last year on +4.2% higher revenues. The sector has had a profitability problem since the start of 2022, but it appears on track to resume its traditional growth attributes going forward, with double-digit earnings growth expected in each of the coming three periods.
For the current period (2023 Q4), the expectation is for S&P 500 earnings to increase by +0.5% from the same period last year on +2.4% higher revenues.
The chart below shows how estimates for 2023 Q4 have evolved since the quarter got underway.
Image Source: Zacks Investment Research
This is a bigger decline in quarterly estimates compared to what we had seen in the comparable periods to either of the preceding two quarters. This is a reversal of the favorable revisions trend that we have been spotlighting in this space since April 2023.
Not only is there a bigger magnitude of cuts to Q4 estimates, but the pressure is also widespread, with estimates for 12 of the 16 Zacks getting cut since the start of October. The biggest cuts to estimates have been for the Autos, Medical, Consumer Discretionary, Transportation, and Basic Materials sectors.
We noted here a few major companies from the Medical and Autos sectors that are suffering significant negative estimate revisions for 2023 Q4. We want to show Disney DIS from the Consumer Discretionary sector and United Airlines UAL from the Transportation sector.
The current Q4 Zacks Consensus EPS for Disney of $1.04 is down from $1.16 a month ago and $1.39 two months back. Disney shares were up following last week’s better-than-expected results, but the company’s near-term earnings outlook is under pressure.
The negative revisions trend is even more pronounced for United Airlines, which is currently expected to bring in $1.73 per share, down from $2.46 per share in the year-earlier period. United’s $1.73 estimate is down from $2.31 a month ago and $2.94 three months back.
You can see the pressure on full-year 2024 earnings estimates in the chart below, which shows the aggregate earnings estimates for the S&P 500 index since mid-May 2024.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
As you can see from these quarterly earnings-growth expectations, the long-feared recession doesn’t appear in this near-term earnings outlook.
Below, we show the overall earnings picture for the S&P 500 index on an annual basis.
Image Source: Zacks Investment Research
This big-picture view of corporate profitability doesn’t leave much room for that development either, as shown in the chart above. That said, we know that macroeconomic growth is moderating, which should have a negative impact on estimates. We showed earlier how estimates for the current and coming periods have started coming down lately, a trend that will most likely remain in place for some time.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
