Corporate earnings: It could be worse

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Times staff writer Walter Hamilton filed this report on the first-quarter earnings picture:

As earnings-reporting season winds down, the numbers aren’t pretty. But considering that the economy may be in a recession, it could be worse.

For the first quarter, S&P 500 profits thus far have tumbled 17.4% from last year, according to Thomson Reuters.

Although that’s horrible, the number is skewed by the disastrous performance of the financial sector, which is off a jaw-dropping 79%.

Excluding financials, profits actually would be up 7.1%, according to Thomson Reuters. And even discounting the first-quarter’s best-performing sector -- energy, with a 26% rise -- earnings still would eke out a 2.8% gain.

That’s far from stellar, but doesn’t suggest an economy that’s headed for deep trouble.

With about 90% of companies having reported so far, 62% have beaten estimates, according to Thomson Reuters. That’s in line with historical standards. But 28% of companies have missed their numbers, far more than the 20% historical average.

Financial companies are the primary offenders -- with American International Group last week becoming the latest financial behemoth to drop an earnings bomb on shareholders in the form of a large unexpected write-off.

“It seems the [financial] companies themselves don’t have a strong grasp” of their earnings picture, said John Butters, director of U.S. earnings research at Thomson Reuters.

Where do we go from here? Wall Street soothsayers expect S&P 500 earnings to droop 5.9% this quarter -- then perk up significantly in the second half of the year.

In part thanks to easy comparisons, they’re looking for profits to jump 17.3% in the third quarter and a whopping 64.1% in the fourth.

It seems that analysts are drinking from the same punchbowl as Wall Street’s most bullish investors: They’re betting on stimulus from government tax rebates and the Federal Reserve’s interest rate cuts to stir the economy.