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Market Insights

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Earnings Time

04/10/2011

The week of April 11 initiates 2011's second round of corporate earnings.  Although a relatively light week, 11 S&P 500 Index companies will report, including Alcoa (AA) on Monday; JP Morgan (JPM) on Wednesday; Google (GOOG) on Thursday; and Bank of America (BAC) on Friday.

• 407 of the S&P 500 Index companies report during the three weeks of April 18, April 25, and May 6
• 66% of the S&P 500 Index market capitalization reports during the two weeks of April 18 & April 25

Robust corporate earnings have been a major tailwind for the capital markets during the past 18 months. The two charts below emphasize that strength via rising profit margins (Fig 1.1) and positive earnings (Fig 1.2).

Confidence has returned and motivated corporate executives to abandon the cash hoarding mentality of 2009 and begin to move cash off the balance sheet in the form of buybacks, dividends, and acquisitions. In fact, the first quarter of 2011 witnessed a 27.8% surge in S&P 500 corporate dividends returning $19 billion to investors.

Still many questions await corporate leadership on the upcoming earnings conference calls as Black Swans have appeared during the past quarter.  Following are the five critical components of the upcoming earnings reports:

1. Margin guidance
2. Rising input costs
3. Supply disruptions from Japan
4. Revenue growth from China 
5. Hiring intentions

FIGURE 1.1

Source:  Bloomberg

FIGURE 1.2

Source:  Bloomberg

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