S&P 500 Corporations Are Reporting Solid Second-Quarter Earnings Growth; Earnings Per Share Reach Record Of $25
At the start of 2011, the Valuation and Risk Strategies (VRS) research team referred to the recently reported record-setting $380.9 billion in December retail sales as evidence that "a large portion of the U.S. economy has now normalized and put the 2008 credit crisis behind it.
Six months later, we are now witnessing yet another historic milepost of the recovery. Second-quarter 2011 S&P 500 corporate earnings are currently tracking at $25.12 per share (17.6% growth), representing a new record for quarterly earnings that eclipses the prior high-water mark of $24.17 recorded in the second quarter of 2007, according to Capital IQ data.
From our perspective, the symmetry here is nearly perfect; in early July 2007, we first started hearing talk of problems at a Bear Stearns sub-prime RMBS hedge fund, which, in hindsight, turned out to be the very early incubation days of the credit crunch. On the fourth anniversary of the start of the credit crunch, after U.S. GDP bottomed out in the second quarter of 2009, S&P 500 profitability has now fully recovered from the credit crisis on the heels of the recovery in retail sales recorded at the start of the year.
VRS Research is impressed with the way that the second-quarter earnings season is unfolding. This past quarter's headwinds included historic flooding and tornado activity in the U.S. Midwest, negative supply-chain repercussions from the March disaster in Japan, a spike in global uncertainty due to simmering fiscal problems in peripheral Europe and the U.S., and a general sense of economic malaise following recent sub-par U.S. employment growth. These economic headwinds prompted stock analysts to reduce consensus second-quarter expected earnings growth to as low as 12% on July 14, from as high as 15.2% on May 4.
Reported earnings, however, have been quite strong so far. Second-quarter S&P 500 earnings are currently growing at 17.6% (60% reported), with 72% of companies beating consensus expectations, while 19% have missed the estimates. Companies on average are reporting earnings that are 6.5% higher than what was expected at the time each company announced earnings. As economic recovery moves forward, we continue to believe that top-line revenue growth remains the main contributor to sustained double-digit earnings growth.
Six months later, we are now witnessing yet another historic milepost of the recovery. Second-quarter 2011 S&P 500 corporate earnings are currently tracking at $25.12 per share (17.6% growth), representing a new record for quarterly earnings that eclipses the prior high-water mark of $24.17 recorded in the second quarter of 2007, according to Capital IQ data.
From our perspective, the symmetry here is nearly perfect; in early July 2007, we first started hearing talk of problems at a Bear Stearns sub-prime RMBS hedge fund, which, in hindsight, turned out to be the very early incubation days of the credit crunch. On the fourth anniversary of the start of the credit crunch, after U.S. GDP bottomed out in the second quarter of 2009, S&P 500 profitability has now fully recovered from the credit crisis on the heels of the recovery in retail sales recorded at the start of the year.
VRS Research is impressed with the way that the second-quarter earnings season is unfolding. This past quarter's headwinds included historic flooding and tornado activity in the U.S. Midwest, negative supply-chain repercussions from the March disaster in Japan, a spike in global uncertainty due to simmering fiscal problems in peripheral Europe and the U.S., and a general sense of economic malaise following recent sub-par U.S. employment growth. These economic headwinds prompted stock analysts to reduce consensus second-quarter expected earnings growth to as low as 12% on July 14, from as high as 15.2% on May 4.
Reported earnings, however, have been quite strong so far. Second-quarter S&P 500 earnings are currently growing at 17.6% (60% reported), with 72% of companies beating consensus expectations, while 19% have missed the estimates. Companies on average are reporting earnings that are 6.5% higher than what was expected at the time each company announced earnings. As economic recovery moves forward, we continue to believe that top-line revenue growth remains the main contributor to sustained double-digit earnings growth.
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