Thursday, May 5, 2011

Companies' profits march 17% higher

Thursday, May 5, 2011

Not even rising oil prices, it seems, can dampen U.S. companies' surging profits.

  • Rising energy and gas prices have not eaten into corporate profits so far.

    By Rick Bowmer, AP

    Rising energy and gas prices have not eaten into corporate profits so far.

By Rick Bowmer, AP

Rising energy and gas prices have not eaten into corporate profits so far.

The roughly three-quarters of companies in the Standard & Poor's 500 index that have released their first-quarter results have reported 17% higher profits in total, marking the sixth quarter in a row of higher earnings.

The results surprised some analysts who had braced for bad news because of economic problems caused by the tsunami in Japan, rising oil prices and political turmoil in the Middle East.

"Looking at the issues we've had, earnings have been somewhat amazing," says S&P's Howard Silverblatt. "Earnings are holding up this stock market."

The strong bottom line reported by companies has yet to filter down to workers and the labor market. Private industry wages and salaries in first quarter grew 0.4%, and unemployment is 8.8% in the face of slow job growth. On Friday, the Labor Department issues its unemployment survey for April. Companies are sitting on a record $940 billion in cash but have been reluctant to invest it in new operations and jobs.

The quarter's earnings reports also:

Provide signs of stronger growth. Companies' revenue rose 10%, the first quarterly double-digit increase since the first quarter of 2006, Silverblatt says.

Exhibit strong growth from some industries. Seven in 10 companies have beaten profit expectations, S&P says. Some industries did even better: 95% of health care companies topped profit forecasts, FactSet says.

Ease fears about disruptions from recent news events. Going into the earnings reporting season, analysts feared problems in Japan could have hurt U.S. companies that rely on parts and goods from that region, says FactSet's John Butters. So analysts went into reporting season guarded, calling for 14% higher profit, Silverblatt says.

Earnings expectations continue to mount, a dangerous omen as energy and material costs rise. Analysts, as measured by S&P, have high hopes for companies this year, expecting them to post record earnings in the third quarter.

Unless prices of key materials fall, companies, unable to pass along higher costs, will see profits suffer and set the stock market up for a correction, says Mark Lamkin of Lamkin Wealth Management. Kellogg was an example Wednesday as it reported 12% lower quarterly profit as costs for ingredients rise.

"Commodity prices are starting to have an impact," Lamkin says. "We're setting up for disappointment in the second half."


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