Market Woes Aside, Earnings Are Looking Up

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After the stock market mania over the past week and a half, you may think Corporate America has contributed to the unrest by reporting a big downturn in profits. After all, profit is what should drive stock prices over the long term.

But that hasn't been the case. During this earnings season, a vast majority of companies -- 69% of the S&P 500 -- have reported earnings that were better than analysts were expecting. For the S&P 500 overall so far this earnings season, earnings are up an impressive 18.9% from last year's levels.

What Happened Last Week

Last week, Disney (DIS) led the charge reporting earnings of $0.78, easily outpacing the $0.72 analysts expected. But that wasn't enough to keep shares from tumbling on a weak outlook.

At Macy's (M), revenue grew 7.3% to $5.94 billion, and earnings per share of $0.55 topped the $0.49 analysts had expected. The retailer had very upbeat comments in its earnings report, showing that maybe we're writing the consumer off too quickly.

A broad look at the S&P 500 shows that, on average, companies have reported earnings that were 7.2% higher than expectations, with only telecom coming in lower than expected. Information technology and financials have shown the most surprising earnings on the upside.

Sector
Above
Match
Below
Total Sector Surprise
Reported
Index
Consumer Discretionary
77%
9%
14%
10%
64
79
Consumer Staples
69%
13%
19%
1.4%
32
41
Energy
71%
0%
29%
6.9%
41
41
Financials
67%
9%
25%
12.4%
81
81
Healthcare
73%
16%
10%
5%
49
52
Industrials
65%
9%
26%
3.8%
57
60
Information Technology
81%
8%
11%
12.8%
63
75
Materials
63%
7%
30%
1.2%
30
30
Telecom
38%
25%
38%
(4.6%)
8
8
Utilities
55%
12%
33%
2.6%
33
33
S&P 500
69%
9%
21%
7.2%
458
500
Source: Capital IQ Consensus Estimate, a division of Standard & Poor's.

What to Watch for This Week

It's a focus on retail this week with Home Depot (HD) and Wal-Mart (WMT) highlighting the earnings reports. Analysts are expecting earnings per share of $0.82 and $1.08, respectively. With a market focused on consumer confidence and a shaky housing recovery, there will also be a lot of focus on what management sees for the third quarter.

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Dell (DELL) reports earnings after the bell Tuesday, giving us a peek into the health of the PC market. Analysts are expecting earnings per share of $0.49.

We'll be providing our feedback on these earnings reports as they happen throughout the week. Until then, reading earnings reports and listening to conference calls can give you a head start on analyzing what's being reported.

Motley Fool contributor Travis Hoium owns shares of Disney. The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended buying shares of Home Depot, Disney, and Wal-Mart, as well as creating a diagonal call position in Wal-Mart.

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