Analysts cheer US firms' profits

AMID all the bad news about the weak US economy is a startlingly positive trend - the long-awaited recovery in corporate profits is gaining momentum. The first-quarter earnings season, now in its final days, is the first for two years that has not left Wall Street grappling with huge disappointment.

Instead, a host of upbeat numbers has kept the market rising since early March. Profits for the 440 companies in the Standard & Poor's 500 index that have so far issued trading statements jumped 14% from a year ago, well above the 8% expected when the reporting season began four weeks ago.

The improvement has been spread among many sectors, including hi-tech and consumer cyclicals. Of the 88% of America's major corporations that have issued trading statements, 63% have beaten analysts' estimates. Better yet, corporate executives surveying the road ahead see a clear path to a recovery in line with market expectations.

'This has been a very good earnings season on two fronts,' said Joe Cooper, senior economist with First Call, the Boston-based earnings tracking company. 'One is that companies are beating estimates by wide amounts and the second, big facet is that analysts are not slashing forecasts for the rest of the year.'

The majority of those that have reported so far have beaten targets by an average of 6.6%, far above the historical norm of 2.7% and the best performance in the eight years First Call has maintained data.

The quality of earnings, too, is improving, helping to fuel a Wall Street rally that began on 11 March. The S&P 500 index is up 15.5% since then.

'The first quarter of earnings has been a turn-on for the market,' said Larry Wachtel, director of Prudential Securities' Marketwatch. 'It isn't just cost-cutting that is driving profits, revenue gains have begun to come on also.'

Investors are breathing a huge sigh of relief that the battered hi-tech sector is overshooting analysts' targets by 10% or more. Year-on-year growth for the industry in the first quarter was 16%, with a 21% surge expected in the April-June period.

The biggest upside surprise has come from basic materials firms, with profits 21% higher than expected. Consumer cyclicals, which include everything from Ford to McDonald's, also generated earnings that were 13% above Wall Street targets.

A few big retailers, including Wal-Mart, report next week and then the earnings season is officially over.