US set for upbeat earnings season

US set for upbeat earnings season
By Courtney Weaver in London and Michael Mackenzie in New York
Copyright The Financial Times Limited 2010
Published: February 1 2010 19:04 | Last updated: February 1 2010 19:04
http://www.ft.com/cms/s/0/822408ee-0f63-11df-a450-00144feabdc0.html


Corporate USA is on track to report one of the best quarterly earnings seasons on record in terms of the number of companies that beat market expectations with their profits.

Nearly four out of five S&P 500 companies that have reported fourth-quarter earnings have beaten consensus forecasts on the back of higher-than-expected jumps in revenue, according to data compiled by Thomson Reuters.

S&P companies are now set to break a run of nine consecutive quarterly declines in profits.

But the performances have not translated into increased optimism over the outlook for 2010, with many analysts cautious over the impact of the withdrawal of economic stimulus programmes and reduced rebuilding of inventories held by companies.

Analysts now expect 27.1 per cent earnings growth for the S&P 500 companies in 2010, down from 30.6 per cent forecast at the start of the year.

“Corporate earnings have been on the mend for a year now but the exact pace of growth for 2010 is still uncertain,” said Nicholas Colas, chief market strategist at BNYConvergEx Group.

“Estimates for whole-year 2010 results are truck-lane wide at $40-75 per share (average for S&P 500 companies).”

Rekha Sharma, global strategist at JPMorgan Asset Management, said: “You might get a strong 2010. We’re just not very optimistic that it’s going to be very strong thereafter.”

To date, 77 per cent of the 226 companies in the S&P 500 that have reported earnings for the fourth quarter have beaten analyst expectations, according to Thomson Reuters.

Thanks to the shocking fourth quarter of 2008, the blended earnings growth rate for 2009’s fourth quarter – reported numbers plus consensus forecasts – is 202 per cent.

Revenue estimates are being beaten by 68 per cent of companies that have reported, a turnround from the third quarter when aggressive cost-cutting put companies in positive territory in spite of weak fundamental sales.

“We’re beginning to see some evidence of top line sales growth recovering, a sign that the recovery is actually sound,” said Ms Sharma.

This week will see results from 94 companies in the S&P, with a further 61 companies due next week.

In earnings surprises, the fourth quarter trails the third quarter of 2009 when 79 per cent of companies beat their profit forecasts, according to Thomson Reuters, which has records stretching back to 1994.

Technology and consumer discretionary are the sectors leading the quarterly earnings charge, while financials have been hit by the repayment of US government funds.