CHICAGO, July 26, 2011 /PRNewswire/ -- Zacks Research Equity Strategist, Dirk Van Dijk says that S&P 500 earnings are continuing to show red ink. He tracks companies on the Zacks.com web site, naming names, while forecasting trends for the months ahead.
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A Great Start to 2Q
Second quarter earnings season is well underway now, with 136 or 27.2% of the S&P 500 reports in. We are off to a great start, with a single major exception: Bank of America (NYSE: BAC), which had a $12 billion negative swing in net income from last year, due to its settlement of most of its mortgage problems it bought with Countrywide Financial.
That pulled down the overall growth rate for the S&P 500 to just 3.56%, way off the 15.3% pace those same 136 firms posted in the first quarter. However, it you exclude financial sector, growth is 21.8%, actually up from the 19.1% pace of the first quarter.
The 27.2% reported figure actually understates how far we are along in earnings season. If all the remaining firms were to report exactly in line with expectations, we now have 37.8% of the total earnings in. The Tech sector in particular has had many high profile positive surprises, including Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and Intel (Nasdaq: INTC).
Top-line results are also off to a very strong start, with 7.01% year-over-year growth for the 136, actually up from the 6.38% growth they posted in the first quarter. The top-line results are even more impressive if the Financials are excluded, rising to 14.003% from the 13.17% pace of the first quarter.
Top-line surprises have been almost as good as than the bottom-line surprises, with a median surprise of 2.01% and a 3.50 surprise ratio. In the early going, though, the medians and surprise ratios can see very sharp fluctuations, so it is still a bit early to read too much into the results.
Rate of Growth to Slow
For the vast majority (364) still to report, the rate of growth is expected to be well below what we have seen already (excluding the BAC effect), with growth of 12.4%, both in total and ex-Financials. I suspect that the actual growth will be somewhat higher than is now expected. Normally about three times as many firms will report positive surprises as disappointments, and that in turn makes the initial growth projections very conservative.
Revenue growth for the remaining firms is also expected to slow, to 6.47% among those yet to report, down from 9.77% they reported in the first quarter. Excluding the Financials, growth is expected to slow to 9.12% from 9.94% in the first quarter. That is still very respectable, especially considering that GDP probably grew only at 1.5% or so in the second quarter with very low inflation. Much of the strong revenue growth is coming from the commodity-oriented Energy and Materials sectors.
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Contact: Dirk Van Dijk, CFA
Company: Zacks.com
Phone: 312-265-9211
Email: [email protected]
Visit: www.zacks.com
SOURCE Zacks Investment Research, Inc.
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