From Wolf Richter at wolfstreet.com:
Declines not seen since the Financial Crisis.
With the first quarter done, the bean-counting begins. One thing is clear: Wall Street is now furiously trying to contain the damage.
Even analysts who estimate pro-forma, ex-bad-items, non-GAAP earnings that S&P 500 companies propagate to look better and that these analysts use to inflate their stock-price targets, just threw in the towel on the quarter.
They expect these inflated earnings per share for the first quarter to plunge 8.5% from a year ago, according to FactSet. If this holds after S&P 500 companies report their ex-bad-items earnings, it would be the worst EPS decline since Q3 2009.
It would also be the fourth quarter in a row of year-over-year earnings declines, a phenomenon that last happened during the Great Recession from Q4 2008 through Q3 2009.
These ex-bad-items earnings are always far better than the still beautified earnings reported under GAAP, which, given these trends, may be too ugly to behold.
And analysts’ earnings estimates always decline in the months leading up to the very days that companies report their earnings. By this strategy, analysts lower their over-optimistic ex-bad-items forecasts of earnings per share — after they used them to pump up their share-price targets – to something companies can actually beat. And Q1 is going to be tough.
So far, 121 companies have issued EPS guidance for the first quarter. Of them, 94 have slashed their EPS outlook and 27 have raised it. If no additional negative guidance appears, it would, according to FactSet, “mark the second highest number of S&P 500 companies issuing negative EPS guidance for a quarter since FactSet began tracking the data in 2006.”
To continue reading: First-Quarter Earnings Are Now Expected to Really Suck
