Bangkok--10 Aug--Standard & Poor's
Standard & Poor's announced today that with 86% of the issues reporting, S&P 500 second quarter operating earnings is expected to set a new quarterly record and result in the 17th consecutive quarter of year-over-year double-digit growth. Sparked by a 44% gain from the Energy sector, second quarter 2006 earnings for the S&P 500 is poised to post a 13.4% increase over that of the second quarter 2005. On an aggregate basis, the earnings amount to $199.4 billion in 2006 versus $177.5 in 2005.
"On the top side, it was all Energy with 87% of the issues within the sector reporting a positive earnings surprise for the quarter. Dragging the S&P 500 earnings down during the quarter was Information Technology, where 62% of its issues reported negative earning surprises," says Howard Silverblatt, Senior Index Analyst at Standard & Poor's Index Services. "Without Energy's 44% gain, the index earnings gain would have been less than 10%, and the double-digit growth record would not be in the cards."
"Better-than-expected second-quarter results, combined with healthy full-year growth expectations by S&P equity analysts, will likely assist the S&P 500 in posting a 5% price gain in 2006," says Sam Stovall, S&P's Chief Investment Strategist. "Strong Q2 results for Energy and Financials, combined with accelerating full-year EPS expectations for Telecom Services, have contributed to the recommended overweighting of these sectors by S&P's Equity Strategy Group," adds Stovall.
As Reported (GAAP) earnings increased 10.3% to $20.18 ($182.7 billion aggregate) during the second quarter from $18.29 ($167.2 billion aggregate) in 2005. Standard & Poor's notes that while the GAAP growth was less than operating earnings growth, the relationship of GAAP to operating was over 90% and well within the historically acceptable levels. Year-over-year sales also posted double-digit growth during the second quarter, with 83% of the issues reporting higher sales, and nearly half reporting at least a 10% gain.
According to Standard & Poor's, one of the most significant changes in earnings expectations has been in the Energy sector. Three months ago it appeared that energy costs would rescind, with Energy's third-quarter earnings expected to go up 5.7% and the fourth quarter expected to show a year-over-year decline. Now, with oil prices near their all-time high, BP temporarily closing the Alaskan Prudhoe Bay oil field, and gasoline averaging over $3 a gallon, Standard & Poor's Equity Research expects third-quarter Energy earnings to increase 16.8% and show an increase for the fourth quarter as well.
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