{"id":719,"date":"2017-10-19T13:51:11","date_gmt":"2017-10-19T17:51:11","guid":{"rendered":"https:\/\/www.etfresearchcenter.com\/articles\/?p=719"},"modified":"2017-10-19T13:51:11","modified_gmt":"2017-10-19T17:51:11","slug":"insurers-drag-down-q3-sp-500-profits","status":"publish","type":"post","link":"https:\/\/www.etfrc.com\/articles\/index.php\/2017\/10\/19\/insurers-drag-down-q3-sp-500-profits\/","title":{"rendered":"Insurers Drag Down Q3 S&P 500 Profits"},"content":{"rendered":"

With less than 20% of S&P 500 firms having reported 3Q17 results, it is still early in earnings season. However, by blending results from companies that have reported with the latest consensus estimates for firms that have yet to report we can get a broad idea of how overall index profits are likely to shape up for the third quarter.<\/p>\n

Losses at Insurers dragged Financials down, and with it\u00a0damped growth of the entire\u00a0S&P 500<\/q>The main conclusion as that while profits in the Energy sector (XLE<\/a>) are rebounding, dramatically lower earnings among Insurance firms\u2014and in many case losses\u2014are dragging the whole Financial sector (XLF<\/a>) down with it. Meanwhile Technology (XLK<\/a>) remains one of the largest contributors to index earnings growth, as it has been in recent years (Figure 1).<\/p>\n

Overall S&P 500 earnings are forecast to grow just 3.3% year-on-year, or about $8.8 billion, to $278 billion or $32.48 per share. (The S&P 500 SPDR ETF (SPY<\/a>) trades at approximately 1\/10th<\/sup> the value of the S&P 500 index, and the fund\u2019s EPS are also 1\/10th<\/sup> the value).<\/p>\n

If earnings growth remains at this level through the end of reporting season it will be the slowest growth rate since 2Q16 when the index was still being dragged down by cratering profits in the Energy sector. (Our growth rate calculations are all based on pro forma<\/em> results; that is, what current index constituents earned this quarter versus what those same index constituents earned in the prior-year quarter.)<\/p>\n

 <\/p>\n\n\n\n\n\n
Figure 2:\u00a0S&P 500 3Q17 Earnings Growth by Sector<\/strong>
\n$millions and percent\u00a0change, year-on-year<\/i> <\/span><\/td>\n<\/tr>\n
\"\"<\/td>\n<\/tr>\n
Source: ETF Research Center and FactSet<\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

The decline in earnings among Financials is paced by an anticipated 67% drop in earnings for the Insurance industry, with many firms such as Chubb Limited (NYSE: CB) and American International Group (NYSE: AIG) forecast to report losses according to the current consensus figures, much of the negative swing due to hurricanes Harvey, Irma and Maria. But the blame doesn\u2019t lie solely with Insurance companies: Wells Fargo (NYSE: WFC) also reported EPS of $0.84 for the quarter, a large negative surprise compared to consensus expectations for $1.03.<\/p>\n

S&P 500 revenue probably grew about 5.2% year-on-year, with Energy being the largest contributor. Even excluding the Energy sector top-line growth was probably 4.1%. That\u2019s respectable for this late in the economic cycle but it\u2019s clear that revenue growth has been decelerating for the past few quarters (Figure 2). Even so, this means that margins likely took a hit for the first time since the 1Q16 (Figure 3).<\/p>\n

 <\/p>\n\n\n\n\n\n
Figure 2: S&P 500 YoY Sales Growth<\/strong>
\nExcluding Energy, quarterly, 1Q10\u20133Q17<\/em>
\n<\/span><\/td>\n		<\/td>\nFigure 3: S&P 500 Net Margins<\/span><\/strong>
\nQuarterly, 1Q10-3Q17<\/em><\/span><\/td>\n<\/tr>\n
\u00a0\"\"<\/td>\n\u00a0<\/strong><\/td>\n\u00a0\"\"<\/td>\n<\/tr>\n
Source:\u00a0ETF Research Center, FactSet & Bloomberg<\/em><\/td>\n<\/td>\nSource: ETF Research Center, FactSet & Bloomberg<\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

One last sour note on earnings: among firms that have reported so far, upside \u201csurprises\u201d are running at just 3.0% overall, about half the rate as in recent quarters. The biggest upside surprises so far have been found in the Materials sector (XLB<\/a>), amounting to 37% above consensus expectations. The smallest have been in Real Estate (XLRE<\/a>) at just 0.2% above target.<\/p>\n

 
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With less than 20% of S&P 500 firms having reported 3Q17 results, it is still early in earnings season. However, by blending results from companies that have reported with the latest consensus estimates for firms that have yet to report we can get a broad idea of how overall index profits are likely to shape…<\/p>\n","protected":false},"author":2,"featured_media":722,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[55,6],"tags":[4,13,8,9,15,14],"class_list":["post-719","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-earnings","category-sector-etfs","tag-spy","tag-xlb","tag-xle","tag-xlf","tag-xlk","tag-xlre","description-off"],"_links":{"self":[{"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/posts\/719","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/comments?post=719"}],"version-history":[{"count":9,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/posts\/719\/revisions"}],"predecessor-version":[{"id":733,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/posts\/719\/revisions\/733"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/media\/722"}],"wp:attachment":[{"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/media?parent=719"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/categories?post=719"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.etfrc.com\/articles\/index.php\/wp-json\/wp\/v2\/tags?post=719"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}