NEW YORK (CNN/Money) – Corporate earnings seem finally to have turned a corner. By Wednesday, 20 percent of the companies in the S&P 500 had reported quarterly results, according to First Call, and 63 percent had surpassed Wall Street's earnings expectations. The market responded accordingly Wednesday, with the Dow rising more than 250 points before ending up 67 points.
In addition, 29 percent of companies matched earnings expectations and only 8 percent missed. Historically, 58 percent have beaten and 21 percent have fallen short.
Second-quarter earnings for the S&P 500 are expected to increase slightly (2 percent) from a year ago, according to First Call. If this holds true, it will be the first time since the fourth quarter of 2000 that the S&P 500 would post a year-over-year earnings increase.
As expected, many consumer oriented stocks had stellar quarters as consumer spending has remained robust. Retailers Bed Bath and Beyond and Costco, auto makers Ford and General Motors and appliance manufacturers Whirlpool and Maytag all reported strong earnings gains that beat analysts' estimates.
| * Analysts were expecting a loss | | Source: FirstCall |
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Several sectors that tend to do well during the initial stages of an economic recovery have also performed. Most banks, for example, proved fears of worsening credit quality wrong. Citigroup and Bank of America both reported earnings that were better than expected. And regional banks continued to shine. North Fork Bancorp, AmSouth and First Tennessee National all beat earnings estimates as well.
Likewise, the industrial sector, another typical early cycle play, is looking solid. Boeing surpassed earnings estimates by more than 15 percent thanks to strength in its defense business. Fellow defense and aerospace firm Northrop Grumman also had a great quarter. Earnings increased 19.5 percent from last year and were 5 percent higher than what analysts were predicting. Other industrials that reported better than expected profits were steel maker Nucor and steel processor Worthington Industries.
There are even positive signs from technology, one of the hardest hit sectors during the bear market. Chip and telecommunications equipment maker Motorola reported a profit of 2 cents a share (excluding restructuring costs). Wall Street had been expecting a loss of 4 cents a share. Furthermore, Motorola raised guidance for the third quarter. Wireless carrier Nextel stunned Wall Street by posting its first profit ever. The company reported robust subscriber growth and lowered its debt load by $1.1 billion.
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The overall earnings outlook for the third quarter looks sanguine as well. Within the past week, companies ranging from industrial conglomerate and Dow component United Technologies to wireless chip manufacturer RF Micro Devices have raised guidance for the second half of the year. According to First Call, the only industry that is expected to post an earnings decline in the third quarter is energy.
The stocks in the Dow Jones Technology index are expected to post a 160 percent gain in earnings, according to First Call. And analysts expect stocks in the Dow Jones Consumer Cyclicals index (which include retailers, leisure and media stocks) to report an 88 percent gain in earnings.
Those numbers should be put into context however. Because of the terrorist attacks last September, earnings in the third quarter of 2001 were particularly bad -- making earnings from this year look particularly good. And concerns about accounting may continue to plague the market.
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