Despite earnings beats, expectations dim for later quarters

Thu Apr 23, 2015 12:44pm EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - Most U.S. companies so far this earnings season have managed to beat Wall Street profit forecasts despite weak sales, but investors hoping corporate headwinds have died down may need to temper their enthusiasm.

Of the 169 Standard & Poor's 500 companies that have reported so far, 71 percent beat earnings estimates, many of which were modest to begin with, Thomson Reuters data showed. But they did so with help from share buybacks, cost-cutting and other measures, instead of robust sales growth.

Despite those beats, analysts are now trimming their profit and sales expectations for the second quarter on the belief that the stronger U.S. dollar and sharply lower oil prices, widely held to have hurt first-quarter results, will continue to dampen business growth for a while.

"The fact that you're seeing some companies beat on the bottom line is not going to change the story. You're going to see some pretty ugly numbers over the next couple of quarters," said Dan Suzuki, senior U.S. equity strategist at Bank of America-Merrill Lynch in New York.

Revenue in the first quarter has disappointed - just 44 percent of the early reporters topped analysts' forecasts - and sales are expected to have dropped 3.3 percent from a year ago, Thomson Reuters data showed.

First-quarter earnings are expected down 1.5 percent from a year ago, based on actual results and estimates for the rest of the S&P 500.

Of the early reporting companies for the first quarter, 59 have beaten earnings estimates but missed on sales, with the trend seen in a wide range of sectors.

Earnings expectations have improved for most S&P sectors since April 1, with financials .SPSY on track to post the biggest profit growth in the quarter.   Continued...

Street signs for Wall St. and Broad St. hang at the corner outside the New York Stock Exchange March 24, 2015. REUTERS/Brendan McDermid