Earnings grow again
The profit recession is clearly over.
For much of the last two years, profits have been falling for big U.S. companies. The plunging price of oil was decimating revenue for energy companies, while the tepid global economy was holding back the rest.
The trend began to turn last year, and it culminated in the most recent earnings reporting season, which has just wrapped up. With 98 percent of companies in the Standard & Poor’s 500 index having reported, earnings per share surged 13.9 percent in the last quarter from a year earlier. It’s the strongest quarter of growth in nearly six years, since the summer of 2011, according to FactSet.
The mini-recovery in the price of oil has helped, and a barrel was trading at about $50 per barrel at the end of March, up from $38 a year earlier. Profits for companies in the financial, technology and raw materials industries were also particularly strong last quarter.
Investors are relieved to see the surge in earnings. After years where stock prices rose much faster than corporate profits, worries percolated that the market had grown too expensive. Last quarter’s strong profit growth could offer some justification for the market’s current record highs.
Can profits keep up? Many companies say they’re seeing improved optimism among their customers, but signs are mixed about how much that will translate into higher sales.