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Downward S&P 500 earnings estimates hit consumer discretionary stocks

16:39, 6 July 2022

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A study of S&P 500 earnings estimates shows weakness for discretionary consumer products such as gambling and cruises – Photo: Getty Images

Amid shifting consumer spending habits, rising costs and inventory management complications, companies that fall into the consumer discretionary bucket of the S&P 500 Composite Index (US 500) have seen the greatest number of downward earnings revisions throughout the second quarter, according to a new report from FactSet Research Systems (FDS).

Consumer Discretionary Select Sector SPDR Fund ETF

Consumer Discretionary Select Sector SPDR Fund ETF (XLY)Consumer Discretionary Select Sector SPDR Fund ETF (XLY) 2Q 2022 - Photo: Shutterstock

This segment of the S&P 500 has been the worst-performing of the index as a whole, experiencing a 26.3% stock price decline throughout the quarter versus the 16.7% decline in the broader index. Consumer discretionary stocks posted the widest first-quarter earnings misses as well as the smallest profit margins.

“The consumer discretionary sector has recorded the largest percentage decrease in estimated dollar-level earnings of all [S&P 500] sectors since the start of the quarter at 20.1%,” FactSet Senior Earnings Analyst John Butters wrote in the Earnings Insight report. “As a result, the estimated year-over-year earnings decline for this sector is now 9.3% compared to an earnings growth rate of 13.5% on 31 March.”

Consumer Discretionary Select Sector SPDR Fund ETF (XLY) stock price


Covid lockdowns hit gaming stocks...

Of the 58 stocks considered consumer discretionary 41 – or 71% – have seen per-share earnings estimates cut. Of those 41 to see earnings estimates cut, 22 – or 54% – have had estimates cut by greater than 10%.

Las Vegas Sands Corp. (LVS) 2Q 2022

Las Vegas Sands Corp. (NYSE: LVS) 2Q 2022Las Vegas Sands Corp. (NYSE: LVS) 2Q 2022 - Photo: TradingView

The largest earnings estimate cuts within the sector have been for Las Vegas Sands (LVS), which has exposure to the Chinese gaming market largely shut down by Covid lockdowns throughout the quarter. As a result, Las Vegas Sands has seen its expected second-quarter loss widen to $0.24 per share from $0.05, a 380% decrease in expected earnings.

Las Vegas Sands stock traded over 15% lower in the second quarter to $33.59 per share at quarter-end from $39.52 on 1 April. Las Vegas Sands stock trades on the NYSE under the ticker LVS.

Las Vegas Sands Corp. (LVS) stock price

...And cruise lines

WYNN) has seen second-quarter earnings cut 197% to a $1.10 per-share loss, from the expected $0.37 loss to start the quarter. Likewise, Wynn Resorts stock lost 29.3% over the quarter to $56.98 from $80.63 on 1 April. Wynn Resorts stock trades on the Nasdaq exchange under the ticker WYNN.

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Not surprisingly, Norwegian Cruise Line Holdings (NCLH) saw its expected second-quarter earnings slashed by 47.7%, to a $0.88 per share loss from the previous $0.46 loss, as the cruise line industry has been slow to rebound from the pandemic. Norwegian Cruise Line stock likewise declined nearly 50% to $11.12 from $21.82 per share over the second quarter.

Norwegian Cruise Line Holdings (Nasdaq: NCLH) price chart

Consumer retail stocks dinged as well

As can be expected, large retail stocks are not immune from analyst earnings cuts, with Amazon and Target have seen the largest dollar basis estimate reductions in the sector. Amazon (AMZN) has had its expected second-quarter earnings slashed to $0.17 per share from $0.56 and Target (TGT) has had its expected earnings cut to $0.91 from $3.93 per share.

The impetus for the lowered expectations is persistent macroeconomic headwinds, FactSet notes. “During the earnings season for Q1 2022, 85% of S&P 500 companies cited ‘inflation’ on their earnings calls, while 74% of S&P 500 companies cited ‘supply chain’, FactSet notes. “These are the highest percentages of S&P 500 companies citing ‘inflation’ and ‘supply chain’ on earnings calls going back to at least 2010.”

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