Hewlett-Packard dealt a strong blow to what was seemingly shaping up to be a good 1^st quarter earnings season for U.S corporations.  Hewlett-Packard Co. reported a small increase in second-quarter profit and, perhaps on a more concerning note, lowered its forecast for the second quarter as well as for the full fiscal year citing weakness in the personal computer and services businesses.

A further look into the 1^st quarter 2011 Earnings Season Report Card perhaps signals another warning flag that perhaps the 1^st quarter wasn’t as strong as many believed and, further, that the economic recovery is not advancing at as fast a pace as many predicted.

According to Bespoke Investment Group, 69% of the S&P 500 firms that have reported first quarter earnings as of May 14 have beaten their earnings per share targets/forecasts for the 1^st Q while only 21% have missed. To put this into perspective, according to Seeking Alpha as of January 2011, since 1998, on average, close to 63% of companies beat their earnings estimates each quarter.

1^st Quarter 2011 Earnings Scorecard

All Companies

S&P 500 Companies Only

Non-S&P 500 Companies Only

Source:  Bespoke Investment Group, May 13, 2011

That having been said, if one looks outside the widely followed U.S. Large Cap dominated S&P 500 universe, the story is not as promising.  When looking outside of the S&P 500, the overall “beat rate” for the non-S&P 500 companies is only 57%.  Further, roughly one out of five firms in the S&P 500 missed their targets while nearly one in three non- S&P 500 firms had a miss rate.

The moral to this story, in our opinion at Hennion & Walsh, is that headline news does not always tell the full story and the U.S. is not out of the woods just yet as it relates to the economic recovery.