Earnings Season Winding Down—Not Great, But Better Than Expected

With 442 firms or 88.4% of the S&P 500 reporting earnings, the first quarter is shaping up as an improved quarter.  Total net income is up 86.8% from the fourth quarter according to Zacks.com, but down 32.0% from a year ago.  The Financial industry reported much better than expected net income, but still the earnings quality remained poor.  Health Care, Technology, and Consumer Discretionary showed a multitude of positive surprises.  

With the majority of firms already reporting earnings, the Financial sector looks to have the strongest growth with 3.1% total net income growth.  Health Care and Utilities both appear to be unchanged from the previous year.  While Consumer Discretionary had a multitude of positive surprises, it reported the worst earnings growth at -129.66%.  The Materials and Energy industries also saw significant deterioration in their earnings.  

When all 500 companies report earnings, the first quarter will have an expected drop of 31.9%.  In addition, currently the second quarter looks to have a drop of 35.7% from last year.  This does imply a recovery in the second half of 2009, as the total net income is expected to be down only 15.7% for the year.  This means that most of the 15.7% drop will show up in the first and second quarters.  And with earnings down 61.8% in the fourth quarter from the previous year, the fourth quarter in 2009 will have extremely easy comparisons.  Therefore, by the fourth quarter, we should start seeing year-over-year earnings growth in most industries.