FV Will Earnings Growth Resume After The Q3 Earnings Season?

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Earnings growth is expected to be negative territory in the Q3 earnings season as well, which will be the 6th quarter in a row of earnings declines for the S&P 500 index. Total earnings for the index are expected to be down -3% from the same period last year on +1.2% higher revenues.

The Energy sector continues to be a big drag in Q3 as well, with total earnings for the sector expected to decline -68.2% from the same period last year on -14.3% lower revenues. Excluding the Energy sector, total earnings for the rest of the S&P 500 index would be up +0.3% from the same period last year.

Other sectors with big declines in Q3 include Transportation (earnings expected to decline -21.6%) and Autos (-18.5%). Overall, half of the 16 Zacks sectors are expected to produce lower earnings in Q3 relative to the year-earlier period.

The Transportation sector’s -21.6% earnings decline on +0.3% higher revenues is primarily due to the air carriers like American Airlines (AAL - Analyst Report) and United Continental (UAL - Analyst Report) whose profits have suffered as a result of higher labor expenses following recent contract awards. The Auto sector’s weak growth in the quarter is primarily concentrated in Ford (F - Analyst Report) , whose earnings are expected to be roughly half of the year-earlier level.

For the Technology sector, Q3 earnings are expected to be -1.8% below the year-earlier level on -1.1% lower revenues, with Apple (AAPL - Analyst Report) as the big drag on the sector’s growth picture. Apple’s Q3 earnings are expected to be down 20.9% from the same period last year on -9.6% lower revenues. Excluding the Apple drag, the Tech sector’s Q3 earnings would be up +3% on +0.5% higher revenues.

On the positive side, Business Services (earnings growth of +7%), Construction (+6.4%), Utilities (+4.6%) and Finance (+4%) are some of the sectors expected to produce modestly higher earnings relative to the same period last year.

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Note: Sheraz Mian regularly provides earnings analysis on Zacks.com and appears frequently in the print and electronic media. In addition to ...

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