Rising Profits in Corporate America Are Boosting Executive Optimism

Rising corporate profits
Rising corporate profits

Corporate executives in America are feeling better these days. Most companies are earning more than analysts expected, with more than 70% of companies in the S&P 500 beating profit forecasts in the last quarter. And 196 companies raised earnings forecasts above analysts' projections last month compared to 130 firms that cut them, Bloomberg reports, as a recovery in the global economy and Federal Reserve spending helps companies.

U.S. companies are raising their outlook not just for oversees growth, but for domestic profits as well. The last time American executives were this optimistic, stocks climbed 39% over the next 3 1/2 years, data compiled by Bloomberg show. Shipping companies and computermakers, often seen as economic bellwethers, boosted forecasts the most.

Equities markets are already responding. The S&P 500 has gained 203 points since falling to a 10-month low on July 2 after companies topped analysts' estimates and investors speculated the Fed would act to boost growth. The benchmark rose 3.6% last week, the fifth-straight weekly gain.

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Companies such as eBay (EBAY) are getting a boost from more consumer purchases. And consumer borrowing in the U.S. unexpectedly increased in September by the most in two years, led by college loans and auto financing.

Adding to improvements in the U.S., international growth and demand are rising, helping to lift profits at companies with a large share of sales outside the U.S. Bloomberg notes that investors are betting profits at S&P 500 companies that get most of their sales from outside the U.S. will beat the market. Since July 2, such stocks rose 10 percentage points more than American-focused stocks.

But for some, such as Clorox (CL) and Jones (JNY), rising raw-material prices are reducing profitability. Both lowered 2010 projections, and Bloomberg is forecasting average quarterly GDP growth of 2.5% through June 2011, which it notes is "half the average rate in the two years following contractions since 1949."

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