Blue-chip earnings remain strong
Despite a disappointing economy, profits for the S&P 500 are robust. The big winners: Burlington Northern and Texas Instruments.
NEW YORK (Money) -- Friday's preliminary report on gross domestic product showed growth at an annual rate of only 1.6 percent. That was disappointing - most economists were expecting around 2 percent.
Other statistics confirm that the economic slowdown is sharper than expected. New home prices dropped nearly 10 percent in September, compared with a year earlier, the biggest drop in 35 years.
Nonetheless, earnings for blue-chip companies have been coming in even better than expected. More than half of the S&P 500 have reported results for the third quarter. So far, there are four times as many positive surprises as negative ones, and earnings for the typical blue chip are up more than 12 percent, according to Zacks Investment Research.
There are several reasons that profits at the largest corporations are holding up better than the overall economy. Cost-cutting efforts have improved profit margins at some companies. Inflation is easing. In addition, cash-rich corporations are using their extra money to repurchase shares, which increases earnings for stocks that are underpriced.
Sixteen of the Sivy 70 have reported quarterly results over the past six trading days. Here's a quick look at their results, adjusted for any one-time events or other special factors:
Amgen's (Charts) earnings were up a robust 22 percent, thanks in large part to the success of anemia drug Aranesp. But analysts caution that some hard-to-replace products will lose patent protection over the next six years.
DuPont (Charts) reported a 48 percent rise in earnings per share, after recovering from most of the effects of Hurricane Katrina. The company sees a continuation of solid results going into next year.
Fortune Brands (Charts) reported a 64 percent profit gain on a 23 percent gain in revenues, chiefly because of recent acquisitions. Results were a tad below projections, but analysts still like the consumer brands conglomerate.
T. Rowe Price (Charts) reported only a single-digit gain in earnings because costs rose faster than revenues. Nonetheless, S&P upgraded the stock to a buy on expectations that business would continue to be strong next year.
Boeing (Charts) suffered a 31 percent drop in earnings because of unexpectedly high costs for a new airplane. Boeing's chief rival Airbus is having even bigger problems with its new plane, however, and Boeing remains optimistic about long-term success.