The bigger problem with the second-quarter earnings season is not the impact of strong dollar, or fall oil prices, but companies’ inability to generate sales in a low-growth environment, according to analysts.

The current consensus forecast for earnings per share on the S&P 500 SPX, is a decline of 4.4%, according to FactSet. Over the past four years, companies beat estimates by an average of 2.9 percentage points, and if that number is applied this quarter, the final number will be a decrease of 1.6%, according to John Butters, earnings analysts at FactSet.

CFOs lose confidence in their companies’ outlooks
Top-line growth is projected to be rather weak, primarily driven by a nearly 40% decline in the energy sector. The consensus estimate for S&P 500 revenue is a decline of about 4.2%. If this turns out to be the final number, it will be the second quarterly decline in a row, which analysts refer to as a revenue recession. Revenue fell nearly 3% during the first quarter.
“We are and have been in an environment of low or falling inflation, to the point that there is a higher risk of deflation than inflation going forward. This means there is almost no ability by companies to raise prices,” said Kate Warne, investment strategist at Edward Jones.

Revenue growth usually tracks the pace at which the underlying economy grows, but during this recovery, sales have lagged GDP growth, said James Abate, chief investment strategist at Centre Funds Management.

“Companies, whose sales are dependent on the economy, will continue to struggle to grow their revenues. While share shrinkage helps the net earnings per share, we see year-over-year EPS growth as weak,” Abate said.

“Looking at operating margins and falling productivity, the stock market is discounting the rosy outlook,” he added.

This week, 53 companies, or 18% of the S&P 500 are scheduled to report earnings, according to Howard Silverblatt, senior index analyst at the S&P Dow Jones Indices.