Market Woes Aside, Earnings Are Looking Up
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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