Q4 Earnings Guidance: Negative Guidance (72%) Above Average
At this point in time, 64 companies in the index have issued EPS guidance for the fourth quarter. Of these 64 companies, 46 have issued negative EPS guidance and 18 have issued positive EPS guidance. Thus, the percentage of companies issuing negative EPS guidance to date for the third quarter is 72% (46 out of 64). This percentage is above the 5-year average of 67%.
Analysts Cut Estimates for Q4 and 1st Half of 2015
While the earnings growth rate for Q3 of 7.3% is well above the estimate of 4.5% on September 30, the estimated earnings growth rates for future quarter have come down sharply over this same time frame, as analysts have cut earnings estimates during the month of October (please see page 2 for more details). For Q4 2014, Q1 2015, and Q2 2015, analysts are currently predicting earnings growth rates of 5.2%, 7.2%, and 8.4%, respectively. These earnings growth rates are well below the estimated growth rates of 8.5%, 9.9%, and 10.7% for these same three quarters back on September 30.
Analysts have also cut revenue estimates during the first month of the fourth quarter as well. For Q4 2014, Q1 2015, and Q2 2015, analysts are currently predicting revenue growth rates of 2.6%, 3.2%, and 2.6%. These revenue growth rates are also well below the estimated growth rates of 3.8%, 4.5%, and
3.6% for these same three quarters back on September 30.
Given the divergence in expected earnings and revenue growth over the next few quarters, however, analysts are expecting profit margins to continue to expand into 2015. Using the bottom-up sales-pershare (SPS) and earnings-per-share (EPS) estimates for the S&P 500 as proxies for expected sales and earnings for the index over the next few quarters, profit margin estimates can be calculated by dividing the expected EPS by the expected SPS for each quarter. Using this methodology, the estimated net profit margins for Q4 2014, Q1 2015, and Q2 2015 are 10.2%, 10.3%, and 10.7%. These numbers are above the blended net profit margin for Q3 2014 (10.1%), and are also well above the average net profit margin of 9.3% recorded over the past four years.
