Energy companies and exporters expected to drag on S&P earnings – MarketWatch

SAN FRANCISCO (MarketWatch) — Energy companies and those relying heavily on international sales are expected to be the biggest drag on earnings this coming season as the S&P 500 Index is forecast to see its year-over-year quarterly earnings decline for the first time in nearly six years.

Stocks gained some needed support this past week after the Federal Reserve indicated a slower pace of gradual rate hikes with the Dow Jones Industrial Average DJIA, +0.94%  advancing 2.1%, the S&P 500 SPX, +0.90%  rising 2.7%, and the Nasdaq Composite Index COMP, +0.68%  gaining 3.2%. The weekly gains on the Dow and the S&P 500 put them back in the black for the year.

Investors had a taste of the international revenue drag this past week as both Nike Inc. NKE, +3.72%  and Oracle Corp. ORCL, +0.57%  reported that quarterly sales would have been much better had it not been for the stronger dollar.

With a little over a week left in the calendar quarter, the U.S. Dollar Index DXY, -1.28% which gauges the dollar against a basket of major currencies, has gained 8% on the year, while crude oil prices have fallen another 15%. Those two factors are going to put a big squeeze on energy companies and U.S. companies that rely on international sales.

Already, S&P 500 earnings for the quarter are expected to decline 4.8% from a year ago, which would be the first year-over-year earnings decline since the third quarter of 2009. If the average low-balling of two to three percentage points holds, that still results in a decline.

Among companies with fewer than 50% of sales in the U.S., that earnings decline more than doubles to 11.6%, according to John Butter, senior earnings analyst at FactSet. Companies with more than 50% of their sales in the U.S. merely break even compared with the year ago quarter.

What's telling is when energy companies are taken out of the mix, a great weight is lifted off the earnings for the rest of the S&P 500, but companies drawing less than 50% of their revenue from U.S. sales are still looking at a year-over-year decline in earnings.

Excluding energy companies, the rest of the S&P 500 is expected to see an earnings gain of 3.1%, according to FactSet data. Companies with more than 50% of their sales in the U.S. are estimated to see a 5.9% rise in earnings, while those with less than 50% of sales in the U.S. are expected to see earnings decline by 1.3%.

Notable earnings this week

Report Date	Company/Ticker (FactSet EPS / revenue forecast)
Mon., March 23	None of note.
Tues., March 24	McCormick & Co. MCK, +1.86%  (64 cents / $ 985.1 million)
Weds., March 25	Red Hat Inc. RHT, +0.46%  (41 cents / $ 456.9 million) Paychex Inc. PAYX, +0.74%  (46 cents / $ 701.3 million)
Thurs., March 26	Accenture PLC ACN, +1.43%  ($ 1.07 / $ 7.38 billion) ConAgra Foods Inc. CAG, +1.75%  (52 cents / $ 3.87 billion) PVH Corp. PVH, +0.80%  ($ 1.73 / $ 2.1 billion) GameStop Corp. GME, +0.32%  ($ 2.16 / $ 3.64 billion)
Fri., March 27	Carnival Corp. CCL, +0.43%  (10 cents / $ 3.57 billion)