Look again - there's good earnings news

S&P 500 firms are on track to report their 4th straight quarter of profit declines. Still, the numbers haven't been as bad as first feared.

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By Paul R. La Monica, CNNMoney.com editor at large


NEW YORK (CNNMoney.com) -- The deluge of quarterly financial reports continue this week. What have we learned so far?

Thomson Reuters is forecasting that second-quarter profits for the S&P 500 will drop 17.9% from a year ago. That would mark the fourth consecutive quarter that earnings will decrease. That's not good.

But if you dig deeper, the results have been surprisingly better-than-expected. According to Thomson Reuters, 67% of the S&P 500 companies that have already reported second-quarter results through July 25 have beat estimates while only 22% missed.

To put that into context, Thomson Reuters said that in a typical quarter, 61% of companies exceed Wall Street's targets and 20% fall short.

Of course, a big reason more companies are topping forecasts this quarter might be because the estimates were so low. That clearly was the case for a lot of the big banks, such as Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500).

Citi merely reported a smaller loss than expected while JPMorgan Chase and BofA posted profit declines that weren't as big as anticipated. Financial services companies overall are expected to have a dreadful quarter, with analysts forecasting a profit decline of 85% from a year ago.

Still, companies outside of financials have continued to hold up reasonably well - their profits are increasing. And that's the case even if you back out the red-hot energy sector, which is expected to post a 25% increase in profits thanks to soaring oil prices.

If you exclude the results from financials and energy companies, you're left with 2.8% profit growth for the other eight sectors in the S&P 500.

That certainly isn't a number to jump up and down about in giddy excitement. But it underscores the fact that many companies are not in as dire shape as many of the more bearish on Wall Street would have you believe.

That was the case with both Verizon (VZ, Fortune 500) and Kraft Foods (KFT, Fortune 500) this morning. Each company reported a rise in quarterly profits that topped forecasts.

Looking ahead, Kraft also slightly raised its earnings target for 2008. And it's not alone.

In the past week, companies as diverse as aerospace equipment manufacturer Goodrich (GR, Fortune 500), networking equipment company Juniper Networks (JNPR) and mall owner Simon Property Group (SPG) have all issued earnings guidance for this year that was higher than what Wall Street was predicting.

And as I pointed out in a column last week, even some consumer companies such as McDonald's (MCD, Fortune 500) and Pepsi (PEP, Fortune 500) are posting healthy results in this rocky economy.

It all just goes to show that it's a mistake for investors to exclusively focus on the results from financial companies.

Who cares if it's a bull or bear market? It's a stock picker's market.

Anyone that's been betting on railroad companies, for example, knows that even with sky-high fuel prices, companies like Union Pacific (UNP, Fortune 500) and Norfolk Southern (NSC, Fortune 500) have benefited from solid demand this year. Their earnings and stock prices reflect that.

Each company posted better-than-expected results last week. Union Pacific's stock has gained nearly 25% this year while shares of Norfolk Southern are up more than 40%.

The bottom line: Plenty of firms are reporting actual good news - not simply the "good news" that comes from bucking doomsday forecasts.

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