It may officially be Spring, but there's a deep chill running through first quarter earnings forecasts.
When earnings season gets under way next week, profits among S&P 500 companies are expected to post a decline of 0.6% in the first quarter, according to FactSet. That would be the first drop in earnings since the third quarter of 2012 and a marked change of fortunes from forecasts at the start of the year, when analysts had been predicting profits would rise 4.2%. While it's not unusual for analysts to slash earnings forecasts, that's a bigger swing in expectations than is usually the case.
At the same time, companies in the S&P 500 are issuing profit warnings in near record numbers.
Ahead of first-quarter earnings reporting season, 93 companies have warned that profits would fall short of forecasts, according to FactSet's count. That makes it the second-highest overall number of companies issuing negative guidance on record.
But shareholders seem to have been taking these profit warnings in stride. Shares of the companies that warned on first-quarter profits gained an average 0.2% after the news. That's a change from the past five years, when they lost an average 0.8% after a profit warning. And shares of companies saying they will have better-than-expected profits have gained 3.6%, above the average 3% gain over the past five years.
That could be because shares tend to move according to whether companies beat or miss Wall Street's forecasts, so analysts and strategists say that firms have incentive to aim low in their forecasts, strategists and analysts say. And last quarter, which had the strongest profit growth in two years, holds the record for the number of corporate profit warnings.
Plus, the average company is warning that profits will fall just 6.7% below Wall Street consensus, FactSet found, below the average of 11% over the past five years.
The sales side is looking brighter as well, with 40 companies warning investors about their first-quarter sales. That's the lowest number since the first quarter of 2012. And Wall Street is forecasting 2.4% of growth in first-quarter sales from last year.