US company profits bigger than Wall Street’s lofty targets

Much stronger-than-expected profit reports from US companies in recent weeks have ratcheted up already high Wall Street forecasts on how second-quarter earnings growth will look versus last year.

Earnings are now expected to have climbed about 90 per cent in the second quarter versus analysts' forecasts of 65.4 per cent at the start of July, according to IBES data from Refinitiv, with results in so far from roughly 300 of the S&P 500 companies as of Monday morning.

Nearly 89 per cent of the reports are beating analysts' second-quarter profit estimates - the highest percentage on record, based on Refinitiv data going back to 1994.

A gangbuster second quarter is expected to mark a peak for recent US earnings growth as companies recover from the depths of last year's pandemic-induced profit collapse.

"Except for a few disappointments here and there, everybody has had solid earnings. It has been a tremendous earnings season, but it was supposed to be," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.

"It will be interesting when you start getting deeper into third and fourth quarters. The market might be anticipating a bit of a trip-up."

Third-quarter earnings are estimated to climb 29.6 per cent from a year-ago quarter. Fourth-quarter earnings are seen gaining 21.2 per cent, based on Refinitiv data.

In aggregate, companies are reporting earnings 16.6 per cent above expectations, compared with an average of 20.1 per cent for the prior four quarters and an average of 3.9 per cent going back to 1994, based on Refinitiv data.

Companies that have contributed the most to the big gains in profit growth include Apple, Wells Fargo, Exxon Mobil and JPMorgan Chase. Financial companies make up half of the top 10 contributors to growth so far this season, Refinitiv data shows.

"Surprises have been positive, large and broad-based across sectors and industry groups," but "returns on results" have been mixed, UBS strategists including Keith Parker wrote in a note Monday.

The S&P 500 is roughly flat since the unofficial start of the earnings season on July 13. Among companies left to report on the quarter are many of the big US retailers including Walmart.