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Making Sense of the Earnings Picture During the Coronavirus

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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:

  • The ongoing Q1 earnings season is less about what happened in the January-through-March period and more about evolving expectations for the current and coming quarters, which continue to be set lower as a result of the pandemic.
  • For the 83 S&P 500 members that have reported Q1 results, total earnings or aggregate net income is down -23.6% on +2.3% higher revenues, with 68.7% beating EPS estimates and 66.3% beating revenue estimates.
  • This is a weaker showing than we have seen from the group in other recent periods and reflects the pandemic-related lockdowns that started coming into effect towards the end of the quarter.
  • Bigger than expected credit costs related to account for the coming economic downturn have weighed heavily on the Finance sector’s profitability, which is dragging down the overall Q1 earnings growth pace for the S&P 500 index. 
  • For the Finance sector, we now have Q1 results from 43.6% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Finance companies are down -46.9% from the same period last year on +1.0% higher revenues, with only 48.3% of the sector companies beating EPS estimates and 69% beating revenue estimates.
  • Excluding the Finance sector drag, Q1 earnings growth for the remaining S&P 500 companies that have reported results would be down -2.7% (vs. -23.6% including the reported Finance results).
  • For the Consumer Staples companies (48.6% of the sector’s market cap in the S&P 500 companies has reported), total Q1 earnings are up +9% on +3.6% higher revenues, with 77.8% beating EPS estimates and 44% beating revenue estimates.
  • For Q1 as a whole, total S&P 500 earnings or aggregate net income is now expected to decline -14.2% from the same period last year on +1.4% higher revenues. This is down from close to +4% growth expected in early January. This is a bigger decline than we have seen in the comparable periods in recent quarters.
  • Q1 earnings are expected to be below the year-earlier level for 11 of the 16 Zacks sectors, with double-digit declines at Autos (-69.7% earnings decline), Aerospace (-43.1%), Energy (-54.7%), Basic Materials (-35.2%), Transportation (-61.4%), Industrial Products (-20.8%), Conglomerates (-19.1%), Consumer Discretionary (-25.6%), Finance (-24.6%),  and Retail (-15.2%).
  • Sectors with positive earnings growth in Q1 include Construction (+15.4%), Business Services (+3.9%), Medical (+2.5%), Consumer Staples (+5.6%), and Utilities (+3.6%).
  • Estimates for Q2 and Q3 are still falling, with Q2 earnings now expected to decline -28.1% and Q3 expected to suffer a -15.3% decline. Sectors suffering the brunt of estimate cuts in Q2 include Energy (-114.7% decline in earnings), Autos (-143.7%), Transportation (-110.8%), Aerospace (-45.6%). Other sectors with big year-over-year earnings declines include: Consumer Discretionary (-55.8%), Basic Materials (-34.0%), Industrial Products (-38.7%), and Conglomerates (-34.0%).
  • Given the uncertain public health backdrop that is driving these estimates cuts, it is reasonable to expect still deeper cuts to estimates in the days ahead, particularly as companies report Q1 results and share their outlook for underlying business conditions during these unusual times even though most of them are withdrawing previously issued guidance.
  • For full-year 2020, total earnings for the S&P 500 index are currently expected to be down -16.2% on -3.5% lower revenues. This is down from close to +8% growth expected at the start of the year. For reference, S&P 500 earnings declined -19.1% in 2008 and -3.4% in 2009, though that was admittedly a different type of downturn.
  • The implied ‘EPS’ for the index, calculated using current 2020 P/E of 20.2X and index close, as of April 21st, is $135.62, down from $161.88 in 2019. Using the same methodology, the index ‘EPS’ works out to $165.04 for 2021 (P/E of 16.6X). The multiples for 2020 and 2021 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
  • Please note that while full-year 2021 earnings for the S&P 500 index are currently expected to be up +21.7% from the steadily lowered 2020 level, the absolute dollar amount of 2021 earnings are only up +2% from the 2019 level.
  • For the small-cap S&P 600 index, total Q1 earnings are now expected to be down -34.6% from the same period last year on -3.4% lower revenues. This would follow +0.7% earnings growth in the preceding period. The Q1 earnings growth picture would be even weaker had it not been for the strong growth in the Finance sector.


We are in uncharted territory with respect to the economic and corporate earnings impact of the ongoing lockdown environment. The level of uncertainty about the extent and duration of the underlying public health issue makes quantifying the impact very difficult, if not altogether impossible. This is the reason that companies are withdrawing previously issued guidance, with AT&T (T - Free Report) and Kimberly-Clark (KMB - Free Report) becoming the latest to do just that.

While the lockdown conditions in the U.S. arrived only in the final weeks of the quarter, they spanned most of the quarter in China and other regions. We saw that in the results from truly global players like Coca-Cola (KO - Free Report) and Proctor & Gamble (PG - Free Report) , with the former suffering and later benefiting from the pandemic.

With the bulk of the pandemic’s economic impact expected to take place in the current period (2020 Q2), analysts have been sharply lowering their estimates over the last few weeks, as the chart below shows.









With Q2 expected to be the ground zero for the lockdown’s economic impact, three of the 16 Zacks sectors are expected to lose money in the quarter. These are Energy, Autos and Transportation, whose Q2 earnings are expected to be down -114.7%, -143.7% and 110.8% from the year-earlier level, respectively.

Other sectors with year-over-year earnings declines include Consumer Discretionary (-55.8%), Basic Materials (-34.0%), Industrial Products (-38.7%), Conglomerates (-34.0%), Aerospace (-45.6%) and Finance (-28.4%). 

The chart on the next page presents expectations for Q1 and Q2 in the context of what was actually reported in the preceding periods and what is currently expected in the back half of the year.









The chart below shows the growth picture on an annual basis. As you can see, estimates for this year are going down in a major way.









There is a big question mark over estimates for this year and beyond, as they reflect assumptions about the duration of the downturn that is unknowable at this stage, given its public health driver. A lot is riding on how the outbreak evolves in the coming weeks, which will determine the extent of which the current shelter-in-place policies will get eased.

In the best-case scenario, the bulk of the economic impact is confined to Q2, with growth trend stabilizing in Q3 and accelerating toward the end of the year. Driving this view is the expectation is that the outbreak peaks in the late-April/early-May timeframe and starts subsiding thereafter. We will see if these expectations pan out, but the coming earnings season will be unusual in many ways.

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