Earnings Season Report Card – 1st Quarter 2011

Hewlett-Packard dealt a strong blow to what was seemingly shaping up to be a good 1st 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 1st quarter 2011 Earnings Season Report Card perhaps signals another warning flag that perhaps the 1st 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 1st 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.

1st Quarter 2011 Earnings Scorecard

All Companies

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S&P 500 Companies Only

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Non-S&P 500 Companies Only

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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.