Tags: Bank of America | Subramanian | energy | earnings

BofA: Better Energy Results Will Help S&P 500 Avoid Earnings Drop

By    |   Tuesday, 05 May 2015 10:45 AM

Energy companies reported profit declines that weren’t as bad as Wall Street had predicted, which now means the S&P 500’s first-quarter earnings won’t contract from a year earlier.

That’s the conclusion of Bank of America Merrill Lynch, which published its latest tally of earnings results in a report titled “What EPS Recession?”

“Energy earnings are still forecast to fall 55 percent year over year, but this is better than the 65 percent drop expected,” Savita Subramanian, head equity and quant strategist at BofA, said in a May 4 report obtained by Newsmax Finance. “Excluding energy, S&P 500 earnings are slated to grow at a healthy 8 percent year-over-year clip in the first quarter.”

A more than 50 percent drop in oil prices since last summer had led analysts to cut their earnings estimates for energy companies. Oil prices began to stabilize as drillers cut costs and shelved rigs.

“Downward revisions ahead of earnings season were the most dramatic we had seen over the last several years,” Subramanian said. “But cuts may have proved too dramatic, as the beat this quarter is now tracking over 5 percent — ahead of our expectations for a more modest 2 percent beat.”

As of last week, 356 companies representing more than 80 percent of the S&P 500 stock index had reported results for the first three months of the year. Earnings per share for the index rose to $28.42 from $27.73 at the end of the prior week, suggesting profits will be better than last year’s, BofA said.

More than half of S&P 500 companies, 56 percent, beat earnings estimates while 41 percent reported revenue that was better than forecast. The percentage of companies that beat estimates for both profits and sales was 28 percent, less than the 35 percent historical average.

“Sales results have been mixed, with aggregate sales 1 percent below expectations,” Subramanian said. “This quarter, sales beats have been rewarded more than earnings beats.”

The consumer discretionary group, which includes cars, hotels, restaurants and household appliances, has had the most disappointing results, according to BofA.

“Many of the retailers have yet to report, but so far consumer discretionary results and guidance do not seem to be improving,” Subramanian said. “If weakness was transitory, guidance would not be getting worse, but it is.”

Looking ahead to the next quarter, earnings may improve with the rise in oil prices and the weakening of the U.S. dollar, whose strength has hurt company profits in the past six months, according to The Wall Street Journal.

“The WSJ Dollar Index fell 3.1 percent last month, its biggest one-month decline in four years,” reported Dan Strumpf in a blog post. “And oil prices soared 25 percent in April.”

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Energy companies reported profit declines that weren't as bad as Wall Street had predicted, which now means the S P 500's first-quarter earnings won't contract from a year earlier.
Bank of America, Subramanian, energy, earnings
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2015-45-05
Tuesday, 05 May 2015 10:45 AM
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