U.S. Corporate Profit Growth in Double Digits

Corporate America rode a second-quarter profit wave that produced the first double-digit growth in nearly two years.

With 95% of the companies that make up the Standard & Poor’s 500-stock index having reported, results show that year-over-year earnings growth averaged 14.7%, excluding what most analysts considered one-time events, according to First Call/Thomson Financial, which tracks corporate earnings.

The final tally is likely to be about 15%, First Call said, the first double-digit growth since the third quarter of 1997. The long-term yearly growth average is about 7%; in the 1990s, it has been closer to 12%.

Technology and consumer cyclical companies in the S&P; 500 posted the greatest growth in the quarter, First Call said.

Only two sectors posted year-over-year declines. Energy company earnings fell, though less than in the previous two quarters, as the price of oil has rebounded after bottoming out in February. Producers of basic materials such as metals and chemicals also fell from last year, suffering from decade-low commodity prices caused by oversupply.

“We’ve had very good earnings surprises from the S&P; 500, primarily due to better-than-expected results overseas and in the commodities area, and also from some tech companies,” said Joseph Abbott, U.S. equity strategist for IBES International, which also tracks earnings.

S&P; 500 average earnings growth was 4.1 percentage points above what analysts had expected, and two-thirds of companies beat expectations. But final results almost always beat the estimates, First Call said, because companies typically guide analysts to lower expectations to numbers the firms believe they can exceed--a practice rewarded by Wall Street.

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