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S&P 500 Earnings Growth Clearing Low Hurdle In Q1

Corporate America weathered the wintry first quarter slightly better than expected, delivering profit growth that was cool rather than frosty.

With 374 of the S&P 500 companies reporting, Q1 earnings are on track for a 4.5% year-over-year gain. That would be the smallest since Q3 2012.

That's better than the 1.2% rise analysts polled by Thomson Reuters had forecast one month ago. But analysts typically cut estimates as results near, then companies beat these lowered views by a few percentage points. In a somewhat unusual twist, revenue is just missing forecasts, coming in at 2.6%.

Unusually harsh winter weather has been cited by most companies, including McDonald's (MCD), CVS Caremark (CVS) and Southwest Airlines (LUV), as a reason for missed estimates, sluggish sales or otherwise negative impacts in Q1.

"We were always expecting this to be the weakest quarter of the year," said Christine Short, director for global market intelligence at S&P Capital IQ. "There were so many weather excuses in the press releases. I think it's legitimate.

Consumer discretionary is reporting 5.3% earnings growth and 4.4% revenue growth with Internet retailers showing 26% earnings growth, despite such big players like Amazon (AMZN) missing estimates.

"They definitely picked up that extra slack for people not willing to leave their house and go to the mall," said Gregory Harrison, an analyst at Thomson Reuters.

Americans in much of the country spent heavily to heat their homes. That was good news for CMS Energy (CMS) and the broader utility sector, which should light up 21.9% earnings growth.

Health care companies should report a 10.8% earnings growth on a 7.8% sales gain. Gilead Sciences (GILD) tripled earnings on its $84,000 hepatitis C drug. Alexion Pharmaceuticals (ALXN) EPS leapt 135%. Drug distributor McKesson (MCK) is expected to report a 65% rise in earnings.

Technology earnings are up 8.6% with revenue climbing 3.4%. Apple (AAPL) easily beat top- and bottom-line views on strong iPhone sales in China. Facebook (FB) nearly tripled its Q1 earnings while revenue growth accelerated to 72% as mobile users climbed above 1 billion.

Financials were a Q1 laggard, heading for a slim earnings deadline. JPMorgan Chase (JPM) was hurt by a slowing mortgage business. Bank of America (BAC) reported a first-quarter net loss with $6 billion in litigation expenses.

Energy is on track for modest declines in profit and revenue. But the sector is expected to report double-digit earnings growth for the next three quarters, Short said.

Sluggish earnings came as the U.S. economy froze. GDP rose at a 0.1% annual rate in Q1 as the winter took a toll. But April job growth and other recent reports show economic activity ramping up again.

With the Federal Reserve tapering its massive monetary stimulus and with persistent political tensions in Ukraine, stocks have been bumpily searching for direction. The S&P is up 1.8% so far this year. Last year, the index rose 29.6%.

Looking forward, 51 S&P 500 companies have cut guidance while 15 have raised. That's worse than the historical average, but much better than in the last several quarters.

Analysts see Q2 earnings growing 7.7% and sales 3.4%.

"If they miss (views), and no longer have the weather excuse, we're really going to have to question the health of corporations," Short said.