Earnings are solid–and the economy’s on track–even if the U.S. stock market doesn’t care right now
Earnings, schmearnings. The stock market simply doesn’t care.
After the close yesterday, May 18, Hewlett Packard (HPQ) reported earnings for its fiscal second quarter of 2010 of $1.09 a share. That was 4 cents a share better than Wall Street had projected. Revenue climbed 12.4% from the second quarter of fiscal 2009 to $30.8 billion. That too was above the Wall Street consensus (at $29.82 billion.) And the company raised its guidance for fiscal 2010 to $4.45 to $4.50 a share. That is slightly above the $4.45 Wall Street consensus and well above the $4.37 to $4.44 a share that the company had projected earlier.
Companies beat Wall Street earnings estimates at a record pace so far this quarter
So far, so good on the earnings front this quarter.
Third quarter earnings reports have beaten estimates at 79% of the 104 of the 500 companies in the Standard & Poor’s index that have reported so far.
Positive surprises in the second quarter helped fuel a rally that looked like it might be flagging in June. But then just 72%, a record now being challenged by this quarter’s results, reported earnings above e Wall Street estimates.
Sales, which have lagged earnings as companies got much of their profit boost from cutting costs, have so far exceeded estimates at bellwether companies.
Wall Street’s numbers on earnings and revenue for 2010 don’t add up
Good number crunching in the “Ahead of the Tape” column in yesterday’s Wall Street Journal by Mark Gongloff.
Conclusion: It’s hard to see how U.S. companies are going to deliver the earnings growth Wall Street now projects for 2010.
Here are the numbers as Gongloff lays them out.
Right now Wall Street analysts expect the stocks in the Standard & Poor’s 500 to pull down earnings of $73 a share in 2010. That would be a 35% increase from 2009.
And if companies deliver, the index is now trading at 15 times projected 2010 earnings. That’s on the low side of the range that history tells is us fair value.
But the Wall Street consensus is also projecting revenue growth of just 5% to 10% in 2010.
Given how tough it’s been for most companies to grow their top line sales in 2009, that seems like a reasonable projection.
So, Gongloff asks, how do you get from 5% to 10% revenue growth to 35% earnings growth?
Earnings above low expectations? Probably. Revenue growth? Unlikely. Will that be enough for a rally?
Last June when this rally looked likely to falter, earnings bailed it out.
Not that earnings were so great. They were just better than expected. Analysts had reduced their predictions by so much, in fact, that some companies turned in quarters that were 20, 30, or even 40 cents a share better than expected.
On October 5 the market moved on on the hope that earnings season, which starts on October 7 when Alcoa (AA) reports, can repeat that magic.
Update Corning (GLW)
The recent past was much better than expected. The near term future is uncertain. And the long-term looks great.
That’s about the way I’d sum up Corning’s (GLW) second quarter report released before the opening bell on July 27.
For the quarter just completed–the recent past–the company reported earnings of 39 cents a share versus Wall Street expectations for 32 cents a share. Revenue climbed to $1.395 billion for the quarter. That was an 18% decline from the second quarter of 2008, but a big 41% increase from the first quarter of 2009.
Corning saw strength across its product line with a 66% increase in total LCD glass for TV screens and similar uses from the first quarter of 2009 and a 14% increase in sales from its telecommunications business on growth in demand for optical fiber from China and in North America from the roll out of fiber to the home from companies such as Verizon (VZ). That latter business is getting a boost from a new Corning technology, bendable fiber, that makes it much easier to get optical fiber to homes and businesses.
Gross profit margin climbed to 41% from 27% in the first quarter.
But Corning said that the third quarter, while strong, wouldn’t show anything like the quarter to quarter growth the company saw from the first to second quarter of 2009. Glass shipments in the third quarter, for example, will be flat or slightly up in comparison to second quarter levels, said CFO James Flaws.
