Transcripts

Wall Street is Buying into the Earnings Trend

PAUL KANGAS: Microsoft is not the only firm that is optimistic about profit growth. For many big U.S. companies, strong demand outside the U.S. has been powering earnings and as Erika Miller reports, Wall Street expects the trend to continue.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Coca-Cola, UPS and Johnson & Johnson are very different companies in very different industries, but they all have something in common. All credited strong overseas demand as the main engine of second quarter earnings growth. They're not alone. Portfolio strategist Brian Rauscher says companies with strong overseas exposure are likely to outshine the rest this earnings season.

BRIAN RAUSCHER, PORTFOLIO STRATEGIST, BROWN BROTHERS HARRIMAN: You're definitely seeing a divergence between companies that are domestic only and ones that have more global growth. And the ones that have been the weakest are the ones that are some of the more domestically oriented companies.

MILLER: According to Standard & Poor's, S&P 500 firms that report regional data, generated more than 40 percent of their sales outside the U.S. last year. Those same S&P 500 firms also earned about half of their pre-tax operating earnings outside the U.S. Experts say foreign demand for U.S. goods is likely to continue to drive profit growth for S&P 500 firms in the second half of this year. That's because U.S. growth is expected to lag the rest of the world's, as it has the past few years. Stephen Wood of Russell Investment Group says the weaker dollar is also helping sales of U.S. goods in foreign markets.

STEPHEN WOOD, PORTFOLIO STRATEGIST, RUSSELL INVESTMENT GROUP: If you're looking at the dollar, which is moving down, holdings in earnings in foreign countries are worth more in dollar terms, so that's been helping international earnings as well.

MILLER: One worrisome scenario for Wall Street is a major slowdown in the U.S. economy that cripples global growth. But for now most experts don't see that happening. In fact, Wall Street is betting U.S. corporate profit growth will pick up though the rest of the year. What's clear is that investors in big U.S. companies have to pay attention to what's happening outside this country. It's a big change from the late 1990s, when the U.S. was driving global growth. Erika Miller, NIGHTLY BUSINESS REPORT, New York.