First-quarter earnings season in the U.S. is basically over, and the profitability of S&P 500 companies has blown well past analyst estimates.
According to financial research provider S&P Capital IQ, more than two-thirds of the 493 companies reporting to date have beaten the Street's expectations, a sign that many analysts were too pessimistic about the prospects for leading U.S. firms and that corporate profitability has been holding up well, at least early in the year.
Overall, Capital IQ expects the first-quarter earnings growth rate to clock in at 7.4 per cent, up significantly from the increase of only 1 per cent expected at the start of earnings season. Sectors leading the way were industrials, up 18 per cent, financials, up 15 per cent, and information technology, up 14 per cent. The laggards were utilities, down 8.5 per cent, materials down 8 per cent, and telecoms down 4.2 per cent.
Now the question for investors is whether this performance is as good as it gets for the rest of the year, especially if earnings start to suffer due to a slowdown in Europe or in the U.S. Some analysts have worried that corporate profit margins are already at peak levels, so continuing to top estimates gets progressively harder if there is any slackening in growth.
Among companies reporting, some of the banks had stellar results compared to a year earlier. Regions Financial Corp. earnings per share surged 1,300 per cent and Fifth Third Bancorp by 260 per cent. Among those reporting earnings per share declines, mortgage insurance provider Genworth Financial, iron miner Cliffs Natural Resources, and natural gas producer Chesapeake Energy had year-over-year drops of 70 per cent or more.