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Despite the recent turnaround in oil prices, benchmark prices for the commodity were down more than -10% in Q3 from the same period last year. This unfavorable year-over-year oil price comparison is the primary reason for the Energy sector’s weak growth numbers in the ongoing Q3 earnings season.

With results from exactly half of the Energy sector companies in the S&P 500 index already out, total earnings for the sector are down -37.1% from the same period last year on -17% lower revenues.

Last week’s Q3 earnings for Exxon (XOM - Free Report) and Chevron (CVX - Free Report) represented year-over-year declines of -51.2% and -46.9%, respectively. While the revisions trend for the current and coming periods has been positive for both companies on the back of improving commodity prices, the year-over-year earnings comparisons still remain negative.

For example, Exxon is currently expected to earn $2.22 per share in the December quarter, which has risen from $2.12 per share a month ago and $2.03 per share three months back. But even the improved $2.22 per share earnings estimate is -34.7% below what Exxon earned in 2022 Q4.

Exxon and Chevron have been in the news lately for announcing major M&A deals, with the former acquiring Pioneer Natural and the latter Hess. Both transactions are still pending.

For 2023 Q3 as a whole, combining the actual Energy sector results that have come out with estimates for the still-to-come companies, total earnings for the sector are expected to be -37.2% below the year-earlier level.

Had it not been for this Energy sector drag, Q3 earnings growth for the S&P 500 index would be +6.9% instead of +1.5% with the sector included.

Looking ahead to the current and coming periods for the Energy sector, the magnitude of declines is expected to steadily improve, with 2023 Q4 earnings expected to be -21.3% below the year-earlier level and 2024 Q1 earnings currently expected to be -7.9% below the same period the year before. Earnings growth for the sector is expected to turn positive in 2024 Q2 at +22%.

Looking at Q3 expectations as a whole, total S&P 500 earnings are expected to be up +1.5% from the same period last year on +1.4% higher revenues.

The chart below shows the overall earnings picture on a quarterly basis.

Image Source: Zacks Investment Research

As you can see from these quarterly earnings-growth expectations, the long-feared recession doesn’t show up in this near-term earnings outlook.

We show below the overall earnings picture for the S&P 500 index on an annual basis.

Image Source: Zacks Investment Research

This big-picture view of corporate profitability doesn’t leave much room for that development either, as shown in the chart above.

Given the emerging consensus on the ‘soft-landing’ outlook for the economy, one can expect this favorable turn in the overall earnings picture to strengthen further as companies report Q3 results and share trends in underlying business.

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