Q1 Earnings Up 18.7%, 2.5x January Estimates!

Q1 Earnings Up 18.7%, 2.5x January Estimates!

May 1, 2005

Q1 Earnings Up 18.7%, 2.5x January Estimates!
As of today, 382 out of the 500 companies in the S%P 500 index have reported their Q1 earnings. Weighted by market cap, the average company reported earnings 18.7% higher than in the in the same quarter last year. (Share-weighted, +17.4%, Non-weighted, +20.7%)

These are blowout numbers, folks, up 2.5x the 7.6% expected for the quarter by analysts in January. Two-thirds of the companies (255/382 so far) beat estimates. Of course, we can thank Mr. Sarbanes and Mr. Oxley for that–in a world where optimistic CEOs, CFOs, and analysts get to go to jail and be a bad man’s girl friend, estimates have become rather subdued.
Here is how the share-weighted numbers break out by sector:
-18.9% Consumer Discretionary
+ 6.4% Consumer Staples
+42.0% Energy
+18.6% Financials
+11.8% Health Care
+25.1% Industrials
+18.4% Information Technology
+66.0% Materials
+ 5.4% Telecom
+ 7.3% Utilities
+17.4% Total for S&P 500

In some cases the big increases represent higher energy and commodity prices and, as such, are somewhat dependent on continued growth in China and India. But revenues were up more than 9% overall. And behind all the sectors you can find the driving force of rising productivity. The catch: continued productivity gains depend on huge impending investments in high-speed communications networks, yet Telecom sector earnings (+5.4%) are not growing fast enough to attract the capital to fund them. Mergers in the sector will help. Congress’s intent to reform telecom law this year is badly needed.

With all this good news you’d think analysts would b e excited about Q2. Not so. Business Week reports current Q2 earnings estimates of just +7.2%. I think the number will be +12-15%. Look for more good surprises.

JR

John Rutledge

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