Halfway into earnings season, company profits head for their worst fall since 2009

• With 55% of S&P 500 companies reporting earnings so far, company profits are headed for their worst fall since 2009.
• For the first quarter of 2020 to May 1, the blended earnings decline for the S&P 500 is 13.7%, according to FactSet.
• "If -13.7% is the actual decline for the quarter, it would mark the largest year-over-year decline in earnings reported by the index since Q3 2009 (-15.7%)," FactSet said.
  
• At a time when company earnings are falling the most since 2009 amid the coronavirus pandemic, the valuation for the S&P 500 is above its five-year and 10-year averages.
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Halfway into earnings season, company profits are headed for their worst fall since 2009.

That's according to data compiled by FactSet and published in a note Friday.

Fifty-five percent of S&P 500 companies have reported earnings to date, and the blended earnings decline is 13.7%. Last week was the busiest week in earnings reports, with four of the world's largest companies reporting results.

If 13.7% holds as the final blended earnings decline once all S&P 500 companies report earnings, it would mark the largest year-over-year decline in earnings since the third quarter of 2009, where S&P 500 companies reported a blended earnings decline of 15.7%.

At a time when company earnings are falling the most since 2009 amid the coronavirus pandemic, the valuation for the S&P 500 as measured by the forward price-earnings ratio is 20.3, which is above its five-year average (16.7) and 10-year average (15.0).

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"This marked the first time the S&P 500 recorded a forward 12-month P/E ratio of 20.0 or higher since April of 2002," FactSet observed.

The S&P 500's valuation is elevated even when stocks are more than 10% off their all-time highs because analyst estimates for next year's earnings are falling.

In fact, during the month of April, there were record-high cuts to S&P 500 per-share earnings estimates for the second quarter of 2020.

The second quarter bottom-up earnings-per-share estimate declined by 28.4% in April to $26.46.

"This marked the largest decline in the quarterly EPS estimate over the first month of a quarter since FactSet began tracking this data in Q1 2002. The previous record was -20.6%, which occurred in the first month of Q1 2009," FactSet said.

The individual sectors that are reporting year-over-year growth in first quarter earnings include healthcare, consumer staples, and information technology. The sectors leading the decline in earnings for the quarter include consumer discretionary, financials, industrials, materials, and energy.

Companies are altering their capital reinvestment and shareholder return plans to shore up their balance sheets and better prepare for a post-coronavirus world. According to a note published by JPMorgan on Monday morning, 17% of S&P 500 companies have reduced or cut stock buyback activity, 7% have reduced dividend payments, 4% have eliminated dividend payments, and 21% have withdrawn earnings guidance.

For 2020, FactSet analysts project an earnings decline of 17.8% and a revenue decline of 2.9%. As of Friday, the S&P 500 index was down 12% year-to-date.

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