Despite Straggling Recovery, Corporate Earnings Near Record Highs

The Cheat Sheet

2010 and 2011 have been downright miserable for the average American worker. With GDP creeping along, unemployment hitting 9.1% last quarter, little to no increase in private payrolls, and a housing market inundated with foreclosures, its a wonder that people are handling themselves so normally. Corporations, contrarily to what one might expect when considering the plight of the average citizen, are doing better than ever. CNN Money reports that S&P 500 companies will average 13% higher earnings this year, still down from the average 47% increase in 2010, but exceptional considering macroeconomic conditions.

According to one Strategist at Schaeffer Research, “We continue to look for earnings and revenues to exceed expectations. Will they slow some the second half of the year? Maybe. But it is all about expectations, and we think analysts are still too bleak as to how strong earnings will come in.” It is still early to project the outcome of the 2011 earnings results at large, though preliminary indicators, in the form of recent earnings from major company’s have been very bullish. Just last week, FedEx (NYSE:FDX) Oracle (NASDAQ:ORCL), Kroger (NYSE:KR), Bed Bath and Beyond (NASDAQ:BBBY), and others reporting strong earnings that widely topped expectations, with Nike (NYSE:NKE) adding substantive news of its own yesterday.

Despite the earnings boosts in 2010-11 for corporations, companies are still underperforming compared to pre-recession numbers, with the S&P (NYSE:SPY) average earnings down 7% from 2007. This year’s rally may see profits and earnings marks return to near all time highs, though some sector’s are expected to struggle due to high food and fuel costs in the first two quarters this year. Peter Tuz comments,”Food-based companies and apparel retailers have been commenting that the high price of commodities are cutting into margins, and we’ll probably hear more comments along those lines in the second quarter reports.”

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