Transcripts

First Quarter Corporate Commonalities

PAUL KANGAS: It's the halfway point in earnings season for corporate America and the numbers are a bit better than expected. With about 50 percent of companies in the Standard & Poor's 500 Index reporting first quarter results, many of them share a significant, common trait. Suzanne Pratt takes a closer look at those first quarter earnings.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: What is it that Caterpillar, the fast food giant McDonalds and technology powerhouse IBM all have in common? The answer: the benefit of the weak U.S. dollar and strong global economy. Those are two factors which have pumped up international sales and in turn, given a nice lift to those companies' first quarter profits. Thomson Reuters Mike Thompson says earnings for many large U.S. companies have been more resilient than expected.

MICHAEL THOMPSON, DIRECTOR OF RESEARCH, THOMSON REUTERS: If you understand or take a very close look at those earnings, you will realize that we've got a little bit of a bounce back largely due to the fact that the dollar is so weak. The repatriation of foreign dollars into the weaker dollar is giving a bit of a tailwind to corporate earnings.

PRATT: So far S&P 500 firms have recorded a 14 percent drop in first quarter earnings growth, mostly due to a dismal performance by financial firms. Remove financial and energy sectors, which are at opposite ends of the profit spectrum and earnings for the index are likely to grow on average about 4 percent. After energy companies, consumer staples, technology and industrials are the next top performing sectors in terms of first quarter profits. Many of the companies in those sectors do strong business overseas, part of what experts describe as the good side of the bad story on the dollar. Brown Brothers Harriman strategist Brian Rauscher says the decent profit growth outside the financial sector may have caught Wall Street by surprise.

BRIAN RAUSCHER, DIR. OF PORTFOLIO STRATEGY, BROWN BROTHERS HARRIMAN: Right now we're going to have eight sectors that are going to post more than 5 percent earnings growth for the quarter. And to me, that's hard for me to say that the earnings backdrop is very weak.

PRATT: Nevertheless, he also says that while first quarter results appear better than expected for big companies, the numbers for small and mid-cap names tell a different story.

RAUSCHER: Those companies haven't been as strong as the large cap earnings and it's certainly showing that the U.S. economy is weak. My read is if you want to use a down quarter as a recession, the research would suggest that we are not yet in a recession, but we are close to one.

PRATT: Analysts still expect to see declining profits for the S&P 500 in the second quarter, but in no way are they forecasting a collapse in corporate profits in the coming months. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.