Profit margins set to hit four-year low

|By:, SA News Editor

From FactSet's weekly Earnings Insight brief (.pdf):

"For Q1 2016, the estimated net profit margin for the S&P 500 is 9.3%. If 9.3% is the actual net profit margin for the quarter, it will mark the lowest net profit margin for the S&P 500 for a quarter since Q4 2012 (8.9%).

"What is driving the weaker projected profit margin for the index relative to recent quarters?

"Five of the ten sectors are projected to see lower net profit margins in Q1 2016 relative to the 3-year average for each sector, led by the Energy sector (0.1% vs. 6.5%). Excluding the Energy sector, the estimated net profit margin for the S&P 500 would be 10.0%. However, this would also mark the lowest net profit margin for the index excluding the Energy sector since Q1 2014 (9.9%). Thus, other sectors are also contributing to the expected lower than average net profit margin for the index for Q1 2016. After the Energy sector, the other four sectors projected to report net profit margins below the 3-year averages for Q1 2016 are the Industrials (7.9% vs. 9.1%), Information Technology (17.2% vs. 18.0%), Consumer Staples (5.6% vs. 6.1%) and Consumer Discretionary (6.5% vs. 6.6%) sectors."

However, there is good news:

"Based on current earnings and revenues estimates, however, the estimated net profit margin for Q1 2016 will reflect a low for the index. Over the next three quarters (Q2 2016 – Q4 2016), the estimated net profit margins for the S&P 500 are 10.1%, 10.5%, and 10.4%. Eight of the ten sectors are projected to see higher average net profit margins over the next three quarters relative to Q1, led by the Energy, Industrials, and Information Technology sectors."

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