Fourth-quarter earnings growth for S&P 500 companies might appear robust on its own, but investors should also consider that growth in context, as it is expected to slow to less than half the average of the first three quarters.

FactSet publishes a “blended growth” percentage change for earnings per share, representing a blend of year-over-year growth of actual results already reported and the average estimates of surveyed analysts of upcoming results.

For the fourth quarter, the blended growth consensus for the S&P 500 was 10.6% through Friday. That compares to the average reported growth of 25.5% for the first three quarters of the year, and would represent the lowest expected growth since 7.3% in the third quarter of 2017.

And for the first time since Q3 2017, the growth won’t be unanimous: The utilities sector is the only one of 11 S&P 500 sectors expected to report an earnings decline.

The expected growth is also down from the 16.31% that was expected at the end of the third quarter, as concerns over the negative effects of a strengthening U.S. dollar, rising input costs and worries over a trade the trade war with China pulled down analyst projections.

“Those worries, especially trade concerns, are likely to produce an earnings season that is softer than the norm for this bull market, according to our analysis; while most companies are likely going to beat their estimates, a below-normal amount of them are likely to do so,” wrote Brian Reynolds, analyst at Canaccord Genuity.

The S&P 500 index

SPX, -0.53%

tumbled 14% during the fourth quarter, compared with a total 9% gain for the first three quarters of the year.

And while a majority of companies are still likely to beat earnings expectations, as usual, Reynolds said his analysis of corporate tax payments in December suggests a “below-normal” number of companies are likely to do so.

Over the past five years, John Butters, senior earnings analyst at FactSet, said 71% of S&P 500 companies beat EPS expectations.

Don’t miss: Citigroup kicks off fourth-quarter earnings season with a revenue miss.

What might be of more concern to investors is that the EPS blended growth estimate for the first quarter has dropped to 1.9% through Friday, from 6.7% as of Sept. 30, which would be the slowest growth since it rose just 0.3% in the second quarter of 2016 to snap a five-quarter streak of declines.

The following table shows what analysts expected through Friday in terms of year-over-year EPS growth for the S&P 500 and each of the S&P 500’s 11 sectors for the fourth and first quarters, as well as the change in estimates since Sept. 30.

Index/sector Blended Q4 EPS growth estimate (decline) Blended Q4 EPS growth estimate as of Sept. 30 Q1 EPS growth estimate (decline) Q1 EPS growth estimate as of Sept. 30
S&P 500 10.6% 16.3% 1.9% 6.7%
Communications services 13.7% 16.7% 0.4% 3.0%
Consumer discretionary 11.2% 16.2% (0.8%) 3.4%
Consumer staples 2.9% 6.7% 0.8% 2.9%
Energy 74.8% 91.4% (0.1%) 39.7%
Financials 10.1% 19.5% 1.9% 4.2%
Health care 10.8% 12.1% 9.1% 8.6%
Industrials 14.2% 20.8% 6.4% 9.1%
Information technology 3.4% 8.8% (4.2%) 3.3%
Materials 5.3% 17.7% 7.0% 12.8%
Real estate 8.5% 9.1% 2.5% 5.2%
Utilities (6.0%) 2.8% 2.8% 2.6%
FactSet

(The earnings estimates exclude results from the one S&P 500 component that reported Monday — Citigroup Inc.

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  — which kicked off earnings-reporting season before the open by reporting adjusted EPS growth of 28% and a total revenue decline of 0.8%, according to FactSet.)

Revenue growth is also expected to decelerate, with the FactSet blended growth estimate of 5.6% well below the average of 9.7% for the first three quarters of 2018, and the slowest growth since the second quarter of 2017’s 5.5% rise.

The following table details what analysts expected through Friday in terms of year-over-year revenue growth for the S&P 500 and each of the S&P 500’s 11 sectors for the fourth and first quarters, as well as the change in estimates since Sept. 30.

Index/sector Blended Q4 revenue growth estimate (decline) Blended Q4 revenue growth estimate as of Sept. 30 (decline) Q1 revenue growth estimate Q1 revenue growth estimate as of Sept. 30
S&P 500 5.6% 6.9% 6.3% 6.5%
Communications services 20.2% 19.0% 13.1% 11.6%
Consumer discretionary 4.7% 6.0% 3.7% 4.7%
Consumer staples 2.0% 2.4% 2.9% 3.0%
Energy 7.8% 14.6% 4.0% 14.6%
Financials 3.4% 4.6% 5.8% 7.1%
Health care 5.8% 6.2% 12.9% 6.2%
Industrials 5.1% 6.7% 4.9% 5.2%
Information technology 1.6% 5.4% 1.3% 5.3%
Materials 10.0% 5.6% 10.0% 5.1%
Real Estate 10.9% 10.6% 3.9% 4.8%
Utilities (2.6%) (4.6%) 3.8% 0.0%
FactSet

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2019-01-14