Profits Sequel Won't Beat Original
What with the low bar that analysts typically set for them, it shouldn't be a shocker that companies' first-quarter earnings are clearing estimates. But the margin that they're clearing them by is pretty impressive.</br></br>With results from about 271 of companies in the index already in, first-quarter earnings for companies in the S&P 500 are now on track for a gain of 3.6% versus a year ago, according to S&P Capital IQ. That isn't very strong, but it is much better than the 0.5% that analysts were looking for at the start of this month. And given that about half the companies in the index have yet to report, and that they, too, will likely top estimates, actual earnings growth will likely be higher still.</br></br>Sales-growth figures, on the other hand, have been going the other way. As of Friday, S&P 500 revenue was on track for a gain of 1.4% versus a year ago. At the beginning of the month, that gain was pegged at 4%. Another sign of the divide between what's happening to the top and bottom lines: Only 43% of companies have topped revenue estimates thus far, compared with 70% for earnings.</br></br>The decline in revenue-growth expectations isn't as bad as it seems at first blush, however. Much of it is concentrated in the energy and basic materials sectors, and reflects a decline in commodity prices that is helping drive down costs to other companies, as well as consumers.</br></br>And once again, the overall weakness in revenue seems concentrated in companies' foreign, rather than domestic, operations. Some evidence for that: Friday's gross domestic product report for the U.S. showed that final sales to domestic purchasers were up 3% in the first quarter. Since large public companies, if anything, tend to generate better sales growth than the overall economy is experiencing, it is pretty clear that overseas sales are the real weak spot.