With revenue streams drying up and fewer places to cut costs, corporate America’s outlook for third-quarter earnings is looking grim.
So far, 103 companies in the index have provided guidance for the third quarter. Of those, 80% have guided below Wall Street consensus estimates, according to John Butters, senior earnings analyst at FactSet. That’s the most negative outlook since FactSet began tracking the figures in the first quarter of 2006.
The outlook doesn’t bode well for a market that’s at multi-year highs and will soon be facing added volatility as the November elections and the January “fiscal cliff” come closer.
Adding insult to injury, S&P 500 companies are projected to see earnings drop year-over-year for the first time in 12 quarters. Third-quarter earnings are currently estimated to drop by 2.7% for the S&P 500 as a whole, the worst forecast growth rate over the past 12 quarters, Butters added. At the beginning of the quarter, analysts had been forecasting earnings growth of 1.9%.
Financial stocks are expected to have the best growth rate, compared with large reported losses last year. Earnings for the sector are expected to grow by 9.9%, with American International Group Inc. /quotes/zigman/557836 /quotes/nls/aig AIG -0.18%and Goldman Sachs Group Inc. /quotes/zigman/188479 /quotes/nls/gs GS +0.21%expected to be the largest contributors, according to Factset.
Sectors expected to see the worst declines are energy, with a projected 21.5% decline, and materials, with a 20.1% projected decline, even though commodities prices have risen.
Third-quarter revenue for companies in the S&P 500 is expected to rise by 0.1% from a year ago. Energy company revenues are forecast to fall 16.3% and materials by 2.8%, according to FactSet. Much of that stunted revenue growth comes from weak economies in Europe, less favorable foreign exchange rates, and slowed growth in such emerging markets as China.
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