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Corporate Earnings on the Rise

Briefing.Com recently noted that as of the end of last week, about one third of the S&P 500 firms reported earnings results for the 1st Quarter of 2010. Bespoke and Briefing.com both highlighted that about 83% of the earnings reports thus far beat analysts’ estimates. To put this in a historical perspective, Thomson Reuters pointed out that, going back to 1994, 60% of earnings reports typically beat analysts’ estimates in a given quarter. As a result, it can reasonably be concluded that it was a stellar first quarter for the majority of U.S. large cap firms.

Additionally, 1st Quarter 2010 revenues are now projected to be up 11% and profits are projected to be approximately 50% higher versus year prior. Lending yet further support for the notion that the worst is now behind us, Caterpillar reported a profit of 36 cents a share, versus last year’s 19 cents a share loss. Caterpillar’s management also raised its sales and profit outlook for 2010 and signaled optimism on the ongoing economic recovery.

All of this is certainly good news although we, at Hennion & Walsh, also note that these numbers are being compared against a very weak 1st quarter of 2009. Hence, investors should not expect such lofty % increases in successive quarters. Finally, we believe that increases in sales, as opposed to increases in revenues alone, are an even more important indicator of economic health as they suggest that business and individuals are starting to spend again.

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