3rd Quarter Earnings Are Down, But not as Much as Expected

A 1% reduction is taking shape, with most companies already reporting, and things could’ve been worse.

Well, the third quarter earnings season looks to be slightly less lousy than forecast, but it  still isn’t great: down just 1.0%, as opposed to the expected negative 3.8% (as of September 30).

With 92% of S&P 500 companies reporting, the third period apparently marks a reprise of reduced earnings. The analysts’ consensus, according to research shop CFRA, is for a dip of 0.6% in the fourth quarter. CFRA says analysts project a rebound in 2020, of positive 4.0% for the year.

The first quarter of 2019 came in below its year-prior period, and the third quarter stands to do that as well, once all the reports are in. But 2019’s second quarter ended up slightly ahead, says FactSet Research. This year has so far avoided back-to-back earnings slides, which signal an earnings recession. The double digit increases of 2017 and 2018 are a memory. The impact of the 2017 tax cut evidently has faded.

If there’s any solace to the underwhelming news, it’s that a decent chunk of third-quarter results beat expectations. Yes, this often is a low bar to surmount. For what it’s worth, 39% of S&P companies beat on both sales and earnings per share, above the 37% historical average and a hair below second quarter’s 40%.

“Commentary on earnings calls has suggested weakening trends, but optimism is building, and the earnings guidance ratio remains above-average,” wrote analysts at Bank of America Merrill Lynch.

The strongest showings in the third quarter were in tech and healthcare, with good numbers put out by Microsoft, Apple, and Intel. Energy and consumer discretionary were the only two that missed estimates, as a category.

On the plus side for the full S&P 500, capital spending grew 4% in the July-September quarter, which suggests many executives have cast off earlier gloom about their prospects. Spending on new plants, equipment, product lines, and other expansionary behavior is about as positive as you can get.

So, maybe there’s hope for the future, after all.

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