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Dollar Impact to Sales Shaves 7% off Q4 EPS

We are in the process of closing the chapter on fourth-quarter earnings season -- only a handful of companies are left to report. As things currently stand earnings per share is settling in at $29.25, representing a 4.3% decline in growth. That is the deepest growth decline the Index has reported since 2009. And although the beat rate is about 130 bps better than the 5.5% decline expected at the start of earnings season on Jan 11th it is soft compared to the historical average beat of 400 to 450 bps.

What’s noteworthy is that analysts reduced estimates by 508 bps from the start of the quarter on Oct. 1st to the kick-off of earnings season in mid-January. This is well above the historical reduction of about 350 bps, highlighting analysts' uncertainty going into the quarterly reports, yet corporations were barely able to surpass the significantly lowered estimates.

The drag from oil prices has clearly played a role in the disappointing quarterly results. In fact excluding energy, earnings growth would be 2.0%. Less discussed this quarter has been the impact of the U.S. dollar on corporate earnings. S&P Global Market Intelligence believes the dollar’s climb shaved an estimated 6-8 percentage points off top line growth, ultimately leading to a 7% reduction in earnings for the S&P 500.

Sales have in turn fallen short of initial estimates – that’s opposite of the trend seen in earnings. A sales decline of 3.5% makes the fourth quarter in a row for a drop in the top line. Excluding the energy drag, total index sales growth would be up 1.4%, but that is below the 3.4% average growth over the prior four quarters when energy is excluded.  Five other sectors are expected to post lower sales year-over-year in the quarter, also weighing on the top line. Historically sales growth has averaged 6%.

S&P 500 Q4 Sales Growth by Sector

S&P 500 Q4 Sales Growth by Sector

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Mar 08, 2016
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