Low Oil Prices Buoy Profits for Other Sectors

Equity investors may see a fourth-quarter earnings boost from transportation, retail and industrial companies, all seen as big beneficiaries of last year's oil price collapse.

Early reports and analyst data suggest solid increases in these areas because of increased consumer spending and reduced input costs.

For the whole S&P 500, any upbeat earnings surprises could offset some of the pressure expected from energy names, whose fourth-quarter profits are expected to have declined 22.1 percent from a year ago, according to Thomson Reuters data.

Declines in energy sector estimates have followed a free fall in oil prices. U.S. crude futures fell from a mid-June 2014 high of $107.73 per barrel to settle at $46.47 on Thursday, a near 57 percent drop.

With results in from just 13 percent of S&P 500 companies, profit growth is forecast at just 3.3 percent, which would be the lowest for any quarter since the third quarter of 2012.

"We think earnings ex-energy are going to be pretty good... above what the market is expecting," said Burt White, chief investment officer at LPL Financial in Boston.

"You're going to continue to see upside surprises in those areas that most benefit. Consumer names are one of them. Another is transport stocks."

Earnings estimates for multiline retailers, which include such names as Macy's and Nordstrom, have had the biggest upward revisions of any industry in the past 30 days, with estimates rising 4.6 percent, Thomson Reuters StarMine data showed.

Forecasts for airlines and road and rail companies have also increased in the past 30 days, along with specialty retail and food and staples retail, StarMine data showed.

Results last week from U.S. railroad CSX, which forecast double-digit earnings growth in 2015, showed its oil expenditures during the quarter dropped nearly 12 percent as the price of crude fell. The stock is up 5.1 percent since reporting results on Jan. 13.

Other early reporters have cited lower energy costs as a positive. Among them was aluminum company Alcoa, which reported a higher-than-expected quarterly profit and swung from a year-ago loss.

The most recent estimates from the U.S. Energy Information Administration show 26.4 of all the energy consumed by the industrial sector is linked to petroleum products, and the number jumps to near 97 percent in the transportation sector.

The Dow Jones transportation average climbed 8.2 percent in the fourth quarter.

A number of airlines have already reported results and gave first-quarter guidance, with Southwest saying it will save about half a billion dollars from the first quarter of 2014 in jet fuel alone.

Some of the benefits for airlines may already be priced into shares. The NYSE ARCA airline index rose 29.2 percent last quarter in its best quarterly performance since the third quarter of 2009. It is up 3.2 percent so far this year.

INDUSTRIALS NOT ALL CLEAR WINNERS

For industrials, the steep slide in oil prices may have a more mixed impact. Engineering companies could suffer from slower oil company spending plans, while companies more closely tied to increased spending in housing and renovation should benefit.

For example, Mueller Water, Watts Water Technologies and Xylem, could benefit from increased construction spending, Cowen and Company analysts wrote in a research note.

Quarterly profit estimates for aerospace and defense companies have risen 0.2 percent in the past 30 days, according to StarMine data.

Investors will get a glimpse of oil's effects on industrials on Friday, when General Electric and Honeywell report results.

The S&P industrial sector rose 6.2 percent in the fourth quarter and is down 0.4 percent so far this year.

By Caroline Valetkevitch