John Butters, VP, Sr. Earnings Analyst
[email protected]
EARNINGS INSIGHT
Media Questions/Requests
[email protected]
S&P 500
July 29, 2016
Key Metrics
• Earnings Scorecard: With 63% of the companies in the S&P 500 reporting earnings to date for Q2 2016, 71%
have reported earnings above the mean estimate and 57% have reported sales above the mean estimate.
• Earnings Growth: For Q2 2016, the blended earnings decline is -3.8%. If the index reports a decline in earnings
for Q2, it will mark the first time the index has recorded five consecutive quarters of year-over-year declines in
earnings since Q3 2008 through Q3 2009.
• Earnings Revisions: On June 30, the estimated earnings decline for Q2 2016 was -5.5%. Six sectors have higher
growth rates today (compared to June 30) due to upside earnings surprises, led by the Information Technology
sector.
• Earnings Guidance: For Q3 2016, 36 companies have issued negative EPS guidance and 20 companies have
issued positive EPS guidance.
• Valuation: The forward 12-month P/E ratio is 17.0. This P/E ratio is based on Thursday’s closing price (2170.06)
and forward 12-month EPS estimate ($127.93).
To receive this report via e-mail, please go to: www.factset.com/data/news_research/researchdesk
To view other market stories with FactSet content, please go to: www.factset.com/insight
All data published in this report is available on FactSet. Please contact [email protected] or 1-877-FACTSET for more information.
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
1
EARNINGS INSIGHT
July 29, 2016
Topic of the Week 1:
Smallest Drop in S&P 500 EPS Estimate For Q3 2016 to Date Since Q2 2014
During the month of July, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q3
bottom-up EPS estimate (which is an aggregation of the EPS estimates for all the companies in the index) dropped
by 0.7% (to $30.44 from $30.66) during this period. How significant is a 0.7% decline in the bottom-up EPS estimate
during the first month of a quarter? How does this decrease compare to recent quarters?
During the past year (4 quarters), the average decline in the bottom-up EPS estimate during the first month of a
quarter has been 2.7%. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate
during the first month of a quarter has been 2.3%. During the past ten years, (40 quarters), the average decline in the
bottom-up EPS estimate during the first month of a quarter has also been 2.3%. Thus, the decline in the bottom-up
EPS estimate recorded during the first month of the third quarter was smaller than the 1-year, 5-year, and 10-year
averages.
In fact, this marks the smallest decrease in the bottom-up EPS estimate over the first month of a quarter since Q2
2014 (+0.4%).
As the bottom-up EPS estimate declined during the first month of the quarter, the value of the S&P 500 increased
during this same time frame. From June 30 through July 28, the value of the index increased by 3.4% (to 2170.06
th
from 2098.86). Assuming the market does not close at or below 2098.86 today, this month will mark the 10 time in
the past 16 quarters in which the bottom-up EPS estimate decreased during the first month of a quarter while the
value of the index increased during the first month of the quarter.
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
2
EARNINGS INSIGHT
July 29, 2016
Topic of the Week 2:
S&P 500 Now Reporting Revenue Growth (0.1%) for Q2 2016
The blended (combines actual results for companies that have reported and estimated results for companies yet to
report) revenue growth rate for the S&P 500 increased to 0.1% this past week, which is above the year-over-year
decline of -0.3% at the end of last week and the year-over-year decline of -0.8% at the end of the second quarter
(June 30). If the index reports growth in revenues for the quarter, it will mark the first time the index has seen yearover-year growth in sales Q4 2014 (2.0%).
What is behind the increase in the revenue growth rate for the second quarter during this earnings season?
Two factors typically drive the improvement in the revenue growth rate during an average earnings season: the
number (or percentage) of companies that report revenues above estimates and the aggregate amount by which
companies report revenues above (or below) estimates.
For Q2 to date, the percentage of companies reporting revenues above estimates (57%) is slightly above the 5-year
average (55%). The aggregate amount by which companies are reporting revenues above estimates for Q2 (+1.2%)
is twice as large as the 5-year average (0.6%). So, while both numbers are above average, the surprise percentage
for Q2 is the main driver of the increase in the Q2 revenue growth rate since June 30.
At the sector level, six sectors are currently reporting revenues above estimates by 1.2% or more for the second
quarter. Of these six sectors, five have also recorded an increase in revenue growth of 1 percentage point or more
since June 30. Of these five sectors, the Energy sector has recorded both the largest aggregate surprise percentage
to date for revenues at +2.9%, and the largest percentage point improvement in revenue growth to date since June
30 at 4.0 percentage points (to -23.7% from -27.7%).
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
3
EARNINGS INSIGHT
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
July 29, 2016
4
EARNINGS INSIGHT
July 29, 2016
Q2 2016 Earnings Season: By the Numbers
Overview
With 63% of the companies in the S&P 500 reporting actual results for Q2 to date, more companies are reporting
actual EPS (71%) and actual sales (57%) above estimates compared to the 5-year averages. In aggregate,
companies are reporting earnings that 4.4% above the estimates. This percentage is above the 5-year average
(+4.2%).
The blended (combines actual results for companies that have reported and estimated results for companies yet to
report), year-over-year earnings decline for Q2 2016 is -3.8%, which is smaller than the expected earnings decline of
-5.5% at the end of the quarter (June 30). Four sectors are reporting year-over-year earnings growth, led by the
Consumer Discretionary and Telecom Services sectors. Six sectors are reporting a year-over-year decline in
earnings, led by the Energy and Materials sectors.
The blended, year-over-year sales growth rate for Q2 2016 is 0.1%, which is above the estimated sales decline of
-0.8% at the end of the quarter (June 30). Six sectors are reporting year-over-year growth in revenues, led by the
Telecom Services and Health Care sectors. Four sectors are reporting a year-over-year decline in revenues, led by
the Energy and Materials sectors.
Analysts currently project earnings growth to return in Q4 2016.
The forward 12-month P/E ratio is now 17.0, which is above the 5-year and 10-year averages.
During the upcoming week, 118 S&P 500 companies (including 2 Dow components) are scheduled to report results
for the second quarter.
More Companies Beating EPS and Sales Estimates To Date than Average
Percentage of Companies Beating EPS Estimates (71%) is Above 5-Year Average
Overall, 63% of the companies in the S&P 500 have reported earnings to date for the second quarter. Of these
companies, 71% have reported actual EPS above the mean EPS estimate, 13% have reported actual EPS equal to
the mean EPS estimate, and 16% have reported actual EPS below the mean EPS estimate. The percentage of
companies reporting EPS above the mean EPS estimate is above the 1-year (70%) average and above the 5-year
(67%) average.
At the sector level, the Health Care (81%), Information Technology (79%), and Consumer Staples (78%) sectors
have the highest percentages of companies reporting earnings above estimates, while the Telecom Services (33%)
and Utilities (58%) sectors have the lowest percentages of companies reporting earnings above estimates.
Earnings Surprise Percentage (+4.4%) is Above 5-Year Average
In aggregate, companies are reporting earnings that are 4.4% above expectations. This surprise percentage is above
both the 1-year (+4.2%) average and the 5-year (+4.2%) average.
The Industrials (+7.3%) and Information Technology (+6.9%) sectors are reporting the largest upside aggregate
differences between actual earnings and estimated earnings, while the Energy (-31.0%) sector is reporting the largest
downside aggregate difference between actual earnings and estimated earnings.
Market Not Rewarding Earnings Beats and Punishing Earnings Misses
To date, the market is rewarding upside earnings surprises less than average and punishing downside earnings
surprises more than average.
Companies that have reported upside earnings surprises for Q2 2016 have seen an average price increase of +1.0%
two days before the earnings release through two days after the earnings release. This percentage is below the 5year average price increase of +1.2% during this same window for companies reporting upside earnings surprises.
Companies in the index that have reported downside earnings surprises for Q2 2016 have seen an average price
decrease of -2.4% two days before the earnings release through two days after the earnings release. This
percentage decrease is larger than the 5-year average price decrease of -2.2% during this same window for
companies reporting downside earnings surprises.
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
5
EARNINGS INSIGHT
July 29, 2016
Percentage of Companies Beating Revenue Estimates (57%) is Above 5-Year Average
In terms of revenues, 57% of companies have reported actual sales above estimated sales and 43% have reported
actual sales below estimated sales. The percentage of companies reporting sales above estimates is above both the
1-year average (49%) and the 5-year average (55%).
At the sector level, the Health Care (86%) sector has the highest percentage of companies reporting revenues above
estimates, while the Telecom Services (0%) and Utilities (8%) sectors have the lowest percentages of companies
reporting revenues above estimates.
Revenue Surprise Percentage (+1.2%) is Above 5-Year Average
In aggregate, companies are reporting sales that are 1.2% above expectations. This surprise percentage is above the
1-year (0.0%) average and above the 5-year (+0.6%) average.
The Energy (+2.9%) and Consumer Discretionary (+2.3%) sectors are reporting the largest upside aggregate
differences between actual sales and estimated sales, while the Utilities (-7.1%) sector is reporting the largest
downside aggregate difference between actual sales and estimated sales.
Decrease in Blended Earnings Decline This Week Due to Upside Earnings Surprises
Decrease in Blended Earnings Decline This Week Due to Upside Earnings Surprises
The blended earnings decline for the second quarter is -3.8% this week, which is smaller than the blended earnings
decline of -4.7% last week. Upside earnings surprises reported by companies in the Information Technology and
Industrials sectors were mainly responsible for the decrease in the overall earnings decline for the index during the
past week.
In the Information Technology sector, the upside earnings surprises reported by Facebook ($0.97 vs. $0.81) and
Alphabet ($8.42 vs. $8.04) were substantial contributors to the decrease in the overall earnings decline for the index
during the past week. As a result, the blended earnings decline for the Information Technology sector decreased to
-2.0% from -3.9% during this period.
In the Industrial sector, the upside earnings surprises reported by Boeing (-$0.44 vs. -$0.92), Raytheon ($2.38 vs.
$1.66), and United Technologies ($1.82 vs. $1.68) were significant contributors to the decrease in the overall
earnings decline for the index during the past week. As a result, the blended earnings decline for the Industrials
sector declined to -3.6% from -6.7% during this period.
Information Technology Sectors Has Seen Largest Increase in Earnings since June 30
The blended earnings decline for Q2 2016 of -3.8% is smaller than the estimated earnings decline of -5.5% at the end
of the second quarter (June 30). Six sectors have recorded an increase in earnings growth since the end of the
quarter (June 30) due to upside earnings surprises, led by the Information Technology (to -2.0% from -7.3%) and
Materials (-8.2% from -12.6%) sectors. Four sectors have recorded a decrease in earnings growth during this time
due to downside earnings surprises and downward revisions to estimates, led by the Energy (to -85.6% from -78.0%)
sector.
Earnings Growth: Fifth Consecutive Quarter of Year-Over-Year Earnings Declines (-3.8%)
The blended earnings decline for Q2 2016 is -3.8%. If the index reports a decrease in earnings for the quarter, it will
mark the first time the index has seen five consecutive quarters of year-over-year declines in earnings since Q3 2008
through Q3 2009. Four sectors are reporting year-over-year growth in earnings, led by the Consumer Discretionary
and Telecom Services sectors. Six sectors are reporting a year-over-year decline in earnings, led by the Energy and
Materials sectors.
Consumer Discretionary: Internet Retail, Home Goods, and Autos Lead Growth
The Consumer Discretionary sector is reporting the highest earnings growth at 9.4%. At the industry level, 8 of the 12
industries in this sector are reporting earnings growth for the quarter. Of these 8 industries, 5 are reporting doubledigit earnings growth: Internet & Catalog Retail (80%), Household Durables (31%), Automobile Manufacturers (24%),
Auto Components (15%), and Distributors (15%).
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
6
EARNINGS INSIGHT
July 29, 2016
Telecom Services: AT&T Leads Growth
The Telecom Services sector is reporting the second highest earnings growth at 7.2%. Of the five companies in the
sector, AT&T is the largest contributor to earnings growth. The company reported actual EPS of $0.72 (which
reflected the combination of AT&T and DIRECTV) for Q2 2016, compared to year-ago EPS of $0.69 (which reflected
standalone AT&T) for Q2 2015. If this company is excluded, the blended earnings growth rate for the Telecom
Services sector would fall to -5.9%.
Energy: Largest Contributor to Earnings Decline in the S&P 500
The Energy sector is reporting the largest year-over-year decline in earnings (-85.6%) of all ten sectors. Five of the
six sub-industries in this sector are reporting a year-over-year decrease in earnings: Oil & Gas Exploration &
Production (-704%), Oil & Gas Equipment & Services (-114%), Oil & Gas Drilling (-109%), Integrated Oil & Gas
(-59%), and Oil & Gas Refining & Marketing (-53%). The Oil & Gas Storage & Transportation (14%) sub-industry is
the only sub-industry in the sector reporting earnings growth for the quarter.
This sector is also the largest contributor to the earnings decline for the S&P 500 as a whole. If the Energy sector is
excluded, the blended earnings growth rate for the S&P 500 would improve to 0.1% from -3.8%.
Materials: Weakness in Chemicals
The Materials sector is reporting the second largest year-over-year decline in earnings (-8.2%) of all ten sectors. At
the industry level, two of the four industries in the sector are reporting a year-over-year decrease in earnings, led by
the Chemicals (-12%) industry.
Revenues: First Quarter of Year-Over-Year Revenue Growth (0.1%) Since Q4 2014
The blended revenue growth rate for Q2 2016 is 0.1%. If the index reports growth in sales for the quarter, it will mark
the first time the index has seen year-over-year growth in sales Q4 2014 (2.0%). Six sectors are reporting year-overyear growth in revenues, led by the Telecom Services and Health Care sectors. Four sectors are reporting a yearover-year decline in revenues, led by the Energy and Materials sectors.
Telecom Services: AT&T Leads Growth
The Telecom Services sector is reporting the highest revenue growth of all ten sectors at 9.8%. At the company level,
AT&T is the largest contributor to revenue growth for the sector. The company reported actual sales of $40.5 billion
(which reflected the combination of AT&T and DIRECTV), compared to year-ago sales (which reflected standalone
AT&T) of $33.0 billion for Q2 2015. If AT&T is excluded, the blended revenue growth rate for the sector would fall to
-0.9%.
Health Care: Broad-Based Growth
The Health Care sector is reporting the second highest revenue growth of all ten sectors at 8.7%. All six industries in
this sector are reporting or are projected to report sales growth for the quarter, led by the Health Care Providers &
Services (11%) industry.
Energy: Largest Detractor to Revenue Growth in the S&P 500
The Energy sector is reporting the largest year-over-year decrease in sales (-23.7%) for the quarter. All six subindustries in the sector are reporting a year-over-year decrease in revenues: Oil & Gas Drilling (-48%), Oil & Gas
Equipment & Services (-34%), Oil & Gas Exploration & Production (-27%), Integrated Oil & Gas (-24%), Oil & Gas
Refining & Marketing (-20%), and Oil & Gas Storage & Transportation (-4%).
This sector is also the largest detractor to sales growth for the S&P 500 as a whole. If the Energy sector is excluded,
the blended revenue growth rate for the S&P 500 would improve to 2.8% from 0.1%.
Materials: Weakness in Chemicals and Metals & Mining
The Materials (-6.8%) sector is reporting the second largest year-over-year decrease in revenues of all ten sectors.
Two of the four industries in this sector are reporting a year-over-year decline in sales for the quarter: Chemicals
(-10%) and Metals & Mining (-9%).
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
7
EARNINGS INSIGHT
July 29, 2016
Looking Ahead: Forward Estimates and Valuation
Earnings Growth Not Expected to Return Until Q4 2016
For Q2 2016, S&P 500 companies are reporting a year-over-year decline in earnings (-3.7%) while also reporting
year-over-year growth in revenues (0.1%). While analysts currently expect revenue growth to continue in the second
half of 2016, they do not expect earnings growth to return until Q4 2016. In terms of earnings, the estimated growth
rates for Q3 2016 and Q4 2016 are -0.6% and 6.3%. In terms of revenues, the estimated growth rates for Q3 2016
and Q4 2016 are 2.3% and 5.0%.
For all of 2016, analysts are still projecting earnings (+0.1%) and revenues (+3.0%) to increase year-over-year.
Guidance: Negative EPS Guidance (64%) for Q3 Below Average to Date
At this point in time, 56 companies in the index have issued EPS guidance for Q3 2016. Of these 56 companies, 36
have issued negative EPS guidance and 20 have issued positive EPS guidance. The percentage of companies
issuing negative EPS guidance is 64% (36 out of 56), which is below the 5-year average of 74%.
Valuation: Forward P/E Ratio is 17.0, above the 10-Year Average (14.3)
The forward 12-month P/E ratio is 17.0. This P/E ratio is based on Thursday’s closing price (2170.06) and forward 12month EPS ($127.93).
The P/E ratio of 17.0 is above the prior 5-year average forward 12-month P/E ratio of 14.6, and above the prior 10year average forward 12-month P/E ratio of 14.3. It is also above the forward 12-month P/E ratio of 16.6 recorded at
the start of the third quarter (June 30). Since the start of the third quarter, the price of the index has increased by
3.4%, while the forward 12-month EPS estimate has increased by 0.9%.
At the sector level, the Energy (57.7) sector has the highest forward 12-month P/E ratio, while the Financials (13.1)
sector has the lowest forward 12-month P/E ratio. Nine of the ten sectors have forward 12-month P/E ratios that are
above their 10-year averages, led by the Energy (57.7 vs. 15.9) sector. The Telecom Services (14.4) is the only
sector with a forward 12-month P/E ratio below its 10-year average (14.6).
Companies Reporting Next Week: 118
During the upcoming week, 118 S&P 500 companies (including 2 Dow components) are scheduled to report results
for the second quarter.
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
8
EARNINGS INSIGHT
July 29, 2016
Q2 2016: Scorecard
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
9
EARNINGS INSIGHT
July 29, 2016
Q2 2016: Scorecard
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
10
EARNINGS INSIGHT
July 29, 2016
Q2 2016: Scorecard
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
11
EARNINGS INSIGHT
July 29, 2016
Q2 2016: Projected EPS Surprises (Sharp Estimates)
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
12
EARNINGS INSIGHT
July 29, 2016
Q2 2016: Growth
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
13
EARNINGS INSIGHT
July 29, 2016
Q3 2016: EPS Guidance
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
14
EARNINGS INSIGHT
July 29, 2016
Q3 2016: EPS Revisions
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
15
EARNINGS INSIGHT
July 29, 2016
Q3 2016: Growth
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
16
EARNINGS INSIGHT
July 29, 2016
CY 2016: Growth
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
17
EARNINGS INSIGHT
July 29, 2016
CY 2017: Growth
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
18
EARNINGS INSIGHT
July 29, 2016
Geographic Revenue Exposure
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
19
EARNINGS INSIGHT
July 29, 2016
Bottom-Up EPS Estimates: Revisions
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
20
EARNINGS INSIGHT
July 29, 2016
Bottom-Up EPS: Current & Historical
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
21
EARNINGS INSIGHT
July 29, 2016
Bottom-Up SPS: Current & Historical
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
22
EARNINGS INSIGHT
July 29, 2016
Net Margins: Current & Historical
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
23
EARNINGS INSIGHT
July 29, 2016
Forward 12M Price / Earnings Ratio: Sector Level
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
24
EARNINGS INSIGHT
July 29, 2016
Forward 12M Price / Earnings Ratio: Long-Term Averages
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
25
EARNINGS INSIGHT
July 29, 2016
Trailing 12M Price / Earnings Ratio: Long-Term Averages
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
26
EARNINGS INSIGHT
July 29, 2016
Important Notice
The information contained in this report is provided “as is” and all representations, warranties, terms and conditions, oral or written,
express or implied (by common law, statute or otherwise), in relation to the information are hereby excluded and disclaimed to the
fullest extent permitted by law. In particular, FactSet, its affiliates and its suppliers disclaim implied warranties of merchantability and
fitness for a particular purpose and make no warranty of accuracy, completeness or reliability of the information. This report is for
informational purposes and does not constitute a solicitation or an offer to buy or sell any securities mentioned within it. The
information in this report is not investment advice. FactSet, its affiliates and its suppliers assume no liability for any consequence
relating directly or indirectly to any action or inaction taken based on the information contained in this report.
About FactSet
FactSet is a leading provider of integrated financial information and analytical applications. More than 63,000 users stay ahead of
global market trends, access extensive company and industry intelligence, and monitor performance with FactSet’s desktop
analytics, mobile applications, and comprehensive data feeds. The Company has been included in FORTUNE's Top 100 Best
Companies to Work For, the United Kingdom’s Great Places to Work and France’s Best Workplaces. FactSet is listed on the
New York Stock Exchange and NASDAQ (NYSE:FDS) (NASDAQ:FDS). Learn more at www.factset.com, and follow us on
Twitter: www.twitter.com/factset.
FactSet.com
Copyright © 2016 FactSet Research Systems Inc. All rights reserved.
27