Rising concerns over downward revisions for Q3 2024
The Q2 earnings season has officially ended with the final companies reporting their Q2 earnings on August 30th. The overall earnings performance was reassuring, as the S&P 500 recorded 11.3% year-over-year growth in Q2—its highest since Q4 2021.
Nevertheless, the outlook for future earnings raises concerns, as the trend of upward revisions we observed in the past two to three quarters has now reversed. This negative trend is particularly evident in the estimates for 2024 Q3, where earnings projections have been revised downward more sharply than in recent periods. The chart below illustrates how Q3 earnings growth expectations have evolved over the past few months.
The scale of the cuts to Q3 estimates is not only larger than what we've seen in comparable periods over the last three quarters, but it’s also more widespread, affecting 14 of the 16 Zacks sectors. Only the Tech and Finance sectors have experienced positive estimate revisions during this period.
This downward trend in revisions has been particularly severe for the Transportation and Energy sectors. Typically, when oil prices fall, Energy sector estimates are pressured. At the same time, lower fuel costs tend to drive positive revisions for the Transportation sector, given the high fuel expenses in that industry. However, the weakening trend in Transportation suggests operators are also grappling with declining demand.
This phenomenon is particularly evident in the case of air carriers. For example, American Airlines’ (AAL) Q3 2024 EPS estimate plummeted by 97% from June to August. Southwest Airlines' (LUV) estimate dropped from $0.45 to a negative $0.24, and United Airlines (UAL) saw a 22% reduction in its Q3 2024 EPS estimate. Aircraft manufacturer Boeing (BA) has also been hit, with its Q3 2024 EPS estimate falling from $0.15 to a negative $0.49 over the same period.
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