News

What are we looking for?

Earnings season is beginning to wind down, and here at Number Cruncher we thought we'd take a look back at the quarter that was. We'll highlight some of the winners, and some of the laggards, as companies struggled to shake off the lingering effects of the recession.

More than 440 companies in the S&P 500 have tabled their results for this quarter and 18 more are on tap this week.

Today, we're concentrating on companies that topped the best guesses on the Street. Tomorrow, we'll focus on the companies that weren't quite able to hit the marks analysts had chalked up.

The big picture

With most companies already on the board with results, it looks like profit will come in well shy of the year-ago figures: To date, earnings are down about 15 per cent on a year-over-year basis, according to Thomson Reuters. While that may look disappointing, most companies are doing better than the analyst community expected them to do. Of the companies that have reported earnings, more than 80 per cent topped expectations.

Financials and consumer discretionary stocks have been posting the strongest earnings growth, while profits in energy, materials and industrials have all declined. In the energy sector, earnings declines are running at a 60-per-cent clip. While this isn't a criterion that affects the names that rise to the top here, it is important to keep in mind; make sure you are doing your homework before making an investment decision.

More about today's screen

We'll use Bloomberg data to crunch through the earnings and estimate numbers. Share price data is from Globe Investor.

What we are looking for are companies in the S&P 500 that have already reported this quarter. We'll keep an eye on the actual and year-ago profit as well as the earnings growth rate and we'll see how that per-share profit stacked up against the analyst estimate. By narrowing our focus to companies that rolled past estimates – the positive earnings surprises – we can get a read on those which had their house in better order than expected.

What we found

Caterpillar Inc. CAT-N powered its way to the top of this list despite a sharp drop in profit. Wall Street underestimated its ability to cut costs and the company now looks better positioned than it did at the beginning of the quarter.

Cost cuts were a significant theme on this list, with Dynegy Inc., DYN-NLSI Corp., LSI-NWhirlpool Corp. WHR-N and Monsanto Co. MON-N all moving past estimates at least in part of the strength of their cost-cutting efforts. Capital One Financial COF-N raced past estimates, aided by a credit card division that helped lifted profit margins despite consumers' continuing credit difficulties.