While overall earnings for the S&P 500 are generally expected to rise by 3 percent in the second quarter, the outlook is skewed by a single company's outsize profit improvement, John Butters, senior earnings analyst at FactSet Research Systems Inc., tells Yahoo.
“Really, one company again is driving the growth rate for the S&P 500,” Butters says. “Last quarter it was American International Group Inc. (AIG) and Apple Inc.; this quarter it is Bank of America Corp.”
Even though Bank of America isn’t expected to report a large profit this quarter, approximately 16 cents a share, the firm reported a huge loss in the year-ago quarter.
“Because of the very easy comparison to the year-ago number, they are having an unusually large influence on the growth rate,” Butters notes.
Excluding Bank of America, Butters says year-over-year earnings will actually decrease 1.7 percent.
“If you look beyond the financial sector, which is expecting growth of 48 percent due to Bank of America, there will not be much growth from the other nine sectors,” he adds.
One area that will perform well, according to Butters, is the industrial sector. This sector will lead earnings and revenue growth, with 6 to 7 percent growth expected for earnings, and 6 percent growth expected for revenue.
Butters sees particular strength from large manufacturing and machinery companies, such as Caterpillar Inc. and Deere & Co., and some of the conglomerates, such as General Electric Co. and Danaher Corp.
“If you are looking for one stronger sector in the group, it would be the industrial sector,” he tells Yahoo. “But otherwise there will be very moderate growth from the remaining sectors.”
The technology sector is the third best-performing sector in terms of growth, at 3 percent, and the second best-performing sector in terms of revenue growth, 6 percent. However, Butters notes that Apple is the driving force behind this sector.
Butters notes that the 3 percent growth rate should mark the lowest growth rate for the S&P 500 in 11 quarters.
“However, there is a likely chance we’ll see some upside surprises and we may see a number that will be a little bit higher than 3 percent,” he added.
The consensus forecast for full-year 2012 earnings has just begun to slide, standing at $104.55 a share for the S&P 500, down 0.8 percent from three months ago, according to FactSet, The Wall Street Journal reports.
Ed Yardeni, an independent economist, predicts S&P 500 earnings will total $102 a share this year, an increase of 5 percent. S&P 500 earnings posted hefty gains of 14 percent last year and 39 percent in 2010, as the economy began to rebound from the Great Recession.
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