US companies are beating expectations…
This week, companies started to report how much money they made last quarter. Expectations were low. Analysts expected earnings to decline from last year for the first time since 2009. Investment research firm S&P Capital IQ projected earnings would fall 4.3% from the same quarter last year. It also projected revenues would fall 3.6%.
But the Financial Times reports that results so far are better than expected…
Already, initial reports are eclipsing expectations—71[%] of the 38 companies that have released quarterly results have [beat] sellside forecasts…
It’s still early. As of Thursday, less than 20% of companies had reported earnings. But there’s good reason to believe the strong results will keep coming. The Financial Times continued…
The beats have come from a diverse set of companies so far: Johnson & Johnson, Bank of America, Netflix, Intel and JPMorgan Chase…
Big banks have stood out so far. Bank of America (BAC) reported a second-quarter profit of $5.3 billion, double last year’s. Citigroup (C) earned its highest quarterly profit in eight years.
However, the banks didn’t increase profits by bringing in more revenue. Both banks’ revenue grew by less than 1% from last year. Instead, they increased profits by spending less.
According to the Boston Consulting Group, US banks have paid $115 billion in legal fees since the financial crisis (through September 2014). But big banks like Bank of America and Citigroup have finally paid off most of their legal bills from the 2008 financial crisis. That’s helped them to keep more profits this quarter.
Citigroup, for example, booked $3.8 billion in legal fees in the second quarter of 2014, which erased nearly all its profits. It didn’t pay a gigantic legal bill last quarter… and that’s a big reason why its profits surged to $4.6 billion.
XLF, an ETF that holds big financial companies, surged to new post-crisis highs on the good earnings news:
Financial companies make up 17% of the S&P 500. They’re its second-largest sector. Only the information technology sector is bigger.
• Big banks aren’t the only ones doing well…
Google (GOOG) reported great results on Thursday. Revenues increased 11% since last year, and net income rose 13%. Google runs the world’s most visited website.
Part of the reason Google had a big quarter is because it was able to adapt to mobile advertising. Mobile advertising is becoming more important because are people using computers less and smaller devices like iPhones more. The International Business Times reported:
…Google attributed [its results] to improvement in its mobile search advertising business. That’s a good sign for investors, who in recent years have seen Google struggle to adjust its business to an increasingly mobile world of digital advertising.
Netflix (NFLX) also had a great quarter. Netflix charges users a subscription fee to instantly watch TV shows and movies over the Internet. Total sales grew 24% during the second quarter, and international sales jumped 48%. The company also added 3.3 million new users to its existing 60 million subscribers.
Netflix’s share price jumped 18% after it reported results. The stock hit an all-time high. It’s the top performer in the S&P 500 so far in 2015.
• But giant energy companies Exxon Mobil and Chevron are struggling…
Exxon Mobil (XOM) and Chevron (CVX) are America’s two largest oil companies. Exxon’s profits sunk 44% in the second quarter. Chevron’s profits dropped 42%.
Cheap oil is hurting these companies. The price of oil is just half of what it was 12 months ago. So when Exxon or Chevron sells a barrel of oil, they’re making half as much money.
XLE, an ETF that holds big energy companies, is down 9% in 2015. And it’s down 27% over the last year.
While cheap oil is hurting companies that sell oil, it’s helping companies that buy it…
Delta Air Lines (DAL) announced strong results on Wednesday. Airlines spend about one-third of their budgets on fuel. So when oil prices are low, airlines make more money.
…lower fuel charges for the quarter helped Delta’s profit surge: Net income for the quarter came in at $1.49 billion, up a whopping 85% over profit reported this time last year….Excluding one-time charges related to things like fleet restructuring and debt extinguishment, Delta recorded $1 billion in net income and $1.27 in earnings per share, a figure that easily beat the $1.22 analyst consensus.
Delta’s stock price is up about 3% since it reported earnings on Wednesday. Delta is the only airline to report results so far. Airlines have struggled so far this year… Fidelity’s index of airline stocks is down 17% in 2015.
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