Stronger US earnings prove pessimists wrong

Wednesday, 25 April 2012 00:25 - - {{hitsCtrl.values.hits}}

Reuters: Wall Street may have written off corporate America too quickly.

In the early stages of the first-quarter reporting season, U.S. companies have beaten earnings forecasts at a rate of 79 percent. They have beaten revenue forecasts at a rate of 76 percent and expectations for overall corporate profit growth have climbed in a few short weeks, based on Thomson Reuters data for results through Monday.

Earnings reports so far show that economic weakness in the euro zone and a slowdown in parts of the Chinese economy have not hurt sales and margins as feared. The earnings beats also suggest that companies have kept costs, including hiring, under control, which may not be such an optimistic signal for the U.S. labor market and economy.

Profit expectations were low going into the reporting period, partly because of concerns about overseas demand for American products and increasing costs such as higher oil prices. Companies may have also been too conservative in their own forecasts.

Less than two weeks into the reporting period, earnings for companies in the Standard & Poor’s 500 .SPX are expected to have increased 4.6 percent for the first quarter. That is above an estimate of 3.2 percent just before earnings began and above a forecast of about 2 percent in February, according to Thomson Reuters data.

However, the reporting season is still young and is likely to remain volatile. Expectations for earnings growth were at 6.2 percent just on Friday.