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Financial stocks star in strong US reporting season

Friday 6th August 2010

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A stand-out feature of the June quarter reporting season in the US is how well some companies in the financial sector are faring.

With 80% of companies within the S&P 500 Index having reported so far, June quarter earnings per share (EPS) are up 53% on average compared with the June quarter last year and are 11% ahead of expectations, says Keith Poore, head of investment strategy at AXA Global Investors.

“This is a good reminder that US earnings growth can be above average, even with a domestic economy operating below potential,” Poore says.

“Sales growth is up a healthy 10%, a touch behind expectations, with all sectors except financials posting positive sales growth for the quarter.”

Financial company sales were down 1% for the quarter. However, their average EPS were up 114%. In the sector at the heart of the global financial crisis, JP Morgan Chase reported a 289% EPS gain, Morgan Stanley a 158% rise and American Express a 211% gain. However, Bank of America's EPS were down 18%.

Among other sectors, industrial stocks reported 27% EPS growth on a 5% increase in sales while consumer goods stocks raised EPS 47% on an 11% sales rise and technology stocks' EPS were up 86% on a 24% sales gain.

The telecommunications sector was the only sector in which EPS went backwards, down 3%, despite sales rising 2%.

Poore says larger companies did even better than the aggregate with the 37 companies earning more than US$1 billion (NZ$1.38 billion) in the June quarter posting a weighted average 103% EPS gain on a 16% sales rise.

“These companies are mostly large multi-nationals which are benefiting from strong global growth, particularly in Asia, and a weaker US dollar,” he says.

Global oil and technology companies are the stand-outs.

For example, the biggest earner, Exxon Mobil, which earned US$7.6 billion in the June quarter, raised EPS 90%, 10% ahead of expectations, even though its 11% sales growth was 16% below expectations.

Microsoft earned US$4.5 billion in the quarter with EPS 38% ahead and 10% above expectations. Apple earned US$3.3 billion with EPS up 160% and 13% ahead of expectations. Intel enjoyed an even more stellar quarter, earning US$2.9 billion with EPS up 829%, 20% ahead of expectations.

Google was a relative laggard with US$1.8 billion in net earnings and EPS up 20%, 1% below expectations.

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