Corporate America racked up another period of...

Corporate America racked up another period of double-digit profit growth in the first quarter, despite record oil prices, rising interest rates and a slowing economy.

With results now reported for more than 90% of companies in the blue-chip Standard & Poor’s 500 stock index, the average year-over-year increase in first-quarter earnings is expected to be 13.8%, according to data firm Thomson First Call.

That is substantially better than the 8% growth that had been forecast as of April 1, based on Wall Street analysts’ estimates as tracked by Thomson. The firm measures operating earnings, which exclude one-time gains or losses.

Earnings have beaten expectations every quarter since the second period of 2003, as analysts have underestimated the pace of the economic expansion and companies’ ability to wring substantial profits from improving sales.

But many experts figured the first quarter would end a six-quarter streak of double-digit growth for the big-name S&P; 500 companies. Zooming energy prices and higher interest rates directly raised many firms’ costs in the quarter and also crimped their customers’ spending.

By April, much of the new data on the economy indicated that growth had hit a “soft patch” in March.

To be sure, the expected 13.8% advance in first-quarter earnings would be below the 20%-plus growth pace in five of the six previous quarters. But given the economic backdrop, the gain suggests that many companies managed to cope relatively well with the economy’s loss of momentum, some analysts said.

“There’s an awful lot to be positive about” in the quarter’s results, said Sam Stovall, chief investment strategist at Standard & Poor’s in New York.

Wall Street, however, hasn’t shown much enthusiasm over the numbers. The Dow Jones industrial average is down 3% since March 31.

On Thursday the Dow slumped 110.77 points, or 1.1%, to 10,189.48, hurt in part by Wal-Mart Stores Inc.’s quarterly profit report. Although the retailer’s results were up 13.6%, they were short of analysts’ estimates. And Wal-Mart said profit in the current quarter also was likely to be below expectations.

Many investors may be fearful that S&P; 500 companies as a whole will be unable to keep posting decent profit growth, despite better-than-expected first-quarter results, analysts say.

“There may be some disbelief over the numbers,” said John Butters, an analyst at Thomson.

A case in point: U.S. Steel Corp. on April 26 said earnings rose more than sevenfold in the first quarter. But its shares have dropped from $46.42 before the report to $38.98 on the New York Stock Exchange on Thursday, because investors are worried about a steep fall-off in growth in the quarters ahead.

Wall Street analysts, too, are dubious about growth, at least in the near term: They have profit gains for the S&P; 500 companies slowing to a 7.4% increase in the current quarter, Butters said. That number would be consistent with a continuation of the economy’s soft patch -- an assumption that may be too bearish, given the government’s report Thursday of a jump in April retail sales.

In the second half of the year, earnings growth is expected to accelerate again. Analysts are estimating 15.8% growth in the third quarter and 12.3% in the fourth quarter, Butters said.

Some investors may be discounting the value of overall profit growth this year because it has been inflated by energy companies’ results. The energy sector is expected to post year-over-year growth of 41% in the first quarter, according to Thomson.

Even excluding energy, however, the rest of the S&P; 500 companies still are expected to show a double-digit earnings gain in the quarter, Butters said. He estimated growth at 11% without the energy sector, helped by solid gains at companies such as Bank of America Corp., Caterpillar Inc., General Electric Co. and Intel Corp.

Within the S&P; index, all 10 major industry sectors are posting better first-quarter earnings than analysts had forecast as of April 1. Thomson data show:

* Industrial companies are estimated to be up 19% from a year earlier, based on results reported so far. That is better than the 12% growth analysts had expected as the quarter ended.

* Healthcare firms are expected to post average growth of 12%, compared with a 6% estimate.

* The technology sector is expected to show a 15% advance, compared with a 12% estimate.

Just one major sector is expected to show a year-over-year profit decline: the “consumer discretionary” sector, which includes automakers. Earnings are expected to be down 7% in the quarter -- although that would be better than the 13% drop that had been projected.

Some analysts say the modest growth in jobs in the economy in the first quarter was indicative of companies’ efforts to hold the line on costs and keep profit up. “That’s how they’re maintaining their margins,” said Scott Black, head of investment firm Delphi Management Inc.

Wall Street bulls say the first quarter’s results bolster the optimistic case for stocks.

Edward Yardeni, an investment strategist at money manager Oak Associates in Akron, Ohio, said he figured that profit growth this year would be strong enough to help the struggling market get back on its feet in the second half.

If the Federal Reserve stops raising interest rates by September, allowing investors to refocus on earnings gains, the S&P; index could rally to as high as 1,360 by year’s end, Yardeni said. That would be a 17% gain from Thursday’s closing level.

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Growth, by sector

First-quarter earnings growth has been better than expected in each of 10 major industries within the S&P; 500 index. Here are growth estimates as of April 1 and current estimates:

*--* Q1 est. growth: S&P; sector April 1 Current Materials* +50% +64% Energy +39% +41% Industrials +12% +19% Technology +12% +15% Healthcare +6% +12% Telecom +6% +10% Financial +1% +10% Utilities +6% +7% Consumer staples** +6% +7% Consumer discretionary*** -13% -7% S&P; 500 +8% +14%

*--*

*Includes steel, mining, paper.

**Includes food, household products.

***Includes autos, restaurants.

Source: Thomson First Call

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