| NEW YORK
NEW YORK U.S. companies have easily beaten expectations for first-quarter earnings so far in the reporting season, but nearly half of the members of the S&P 500 are yet to announce results and they are unlikely to be as robust.
With results in from 271 of the S&P 500 companies, year-over-year earnings growth is projected at 3.9 percent, compared with a forecast for 1.5 percent growth at the start of the earnings season, Thomson Reuters data shows. That figure includes those that have reported and analyst estimates for those who have not.
The companies yet to report are expected to post an aggregate earnings decline of 0.4 percent, according to Thomson Reuters data - whereas the companies that have already reported have posted growth of 6.1 percent.
Among the biggest companies yet to report are Dow components Wal-Mart Stores Inc (WMT.N) and Home Depot (HD.N).
Some 69 percent of the S&P 500 have beaten forecasts, once again conforming to the pattern of lowering expectations enough to "surprise" by beating them. The 69 percent figure exceeds the long-term average of 63 percent. This has been the pattern for the last 15 quarters, with growth estimates at the beginning of earnings ultimately being beaten by at least a full percentage point.
From April 1 to April 24, S&P 500 earnings growth expectations fell 170 basis points for the second quarter, 130 basis points for the third quarter and 70 basis points for the fourth quarter.
"If this recent pattern holds, you're going to find that those beats will continue and therefore lead earnings season to be one of continued positive surprise," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
So far, this has been good enough for investors. Since earnings season began with Alcoa's report on April 8, the S&P 500 has gained 1.2 percent, and it closed Friday less than 1 percent from its all-time high of 1,593.37 reached on April 11. So far this year, it has climbed nearly 11 percent.
GOING FORWARD, WITH CAUTION
Even though profits have been better than expectations, revenue forecasts have declined, a sign, once again, that companies are exceeding results on the bottom line because of reduced expenses, and not because of stellar sales. So far, just 42 percent of companies are beating revenue expectations, below the long-term average.
First-quarter revenue now is expected to fall 0.3 percent, which is worse than the forecast for 1 percent growth when the season started.
That means companies - yet again - have been able to squeeze out higher profits through cost-cutting and other measures. But that does not bode well for hiring and stands as a potential headwind to the economy in coming quarters.
"It does concern me. It's not sustainable over the medium or the long term. There's only so much companies can do to sustain growth without increasing sales," said Paul Zemsky, head of asset allocation at ING Investment Management, in New York.
There are plenty of examples of major companies that were deeply reserved about the second quarter or the remainder of the year.
Among those were Apple Inc (AAPL.O) and Amazon.com Inc (AMZN.O). Apple, until recently the world's biggest company by market value, saw its first quarterly profit decline in a decade and issued a soft outlook for the second quarter that fell short of investor hopes. The stock has lost about 40 percent of its value since September.
"The market was telling you the numbers were too high," BGC analyst Colin Gillis said of Apple's outlook, adding that it was "pretty much even worse than even I was expecting."
(Additional reporting by Rodrigo Campos and Chuck Mikolajczak; Editing by Marguerita Choy)