Profit Party Portrays a Strong Economy After All

With the bad news mostly in large but specific segments like financial services and housing, much of Corporate America is on a roll.
Stephen TaubJanuary 25, 2008

If you have been mesmerized by the steady drumbeat of billion-dollar write-offs from the world’s largest banks, home foreclosures, and dizzying drops in stock prices, it would be easy to conclude that the economy is falling apart.

It also doesn’t help anyone’s confidence in the economy that Congress and the President are eager to send checks to millions of Americans to get them to spend money.

However, the reality is that outside of the financial-services and housing-related sectors, corporate earnings are looking pretty decent. Last week alone, companies in an array of industries reported strong earnings, in many cases handily exceeding Wall Street’s expectations and partially explaining why the stock market has staged a rally in the past few days. Examples:

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• On Thursday evening, Microsoft said second-quarter earnings surged 79 percent to $4.71 billion, or 50 cents per share. Analysts were looking for 46 cents per share. In addition, the software giant raised its forecast for the rest of the year. CFO Chris Liddell told reporters the company now gets about 60 percent of its sales from outside North America.

• Also on Thursday, Xerox Corp. reported a 79 percent increase in fourth-quarter earnings.

• United Technologies said fourth-quarter earnings rose 23 percent, thanks to strong demand from the aviation and commercial construction markets. After deducting one-time items, earnings per share came in at $1.12, exceeding analysts’ estimates by 5 cents. “Although the U.S. economic outlook is mixed, UTC’s balance across geographic and product markets should sustain yet another year of double-digit earnings per share growth,” said chairman and CEO George David.

• Lockheed Martin reported a 9.6 percent increase in fourth-quarter earnings, beating analysts’ estimates, and raised its 2008 earnings forecast.

• Caterpillar said earnings increased by more than 13 percent to $975 million, or $1.50 a share, beating the average analyst estimate by 1 cent. The company said sales in Europe and Asia offset a U.S. slowdown in construction and mining demand.

• Honeywell said fourth-quarter earnings climbed 18 percent on strong demand for airplane parts, thermostats, and security systems. The earnings came in at the high end of the company’s projections and in line with analysts’ expectations.

• Juniper Networks reported a 73 percent increase in fourth-quarter earnings, thanks to strong sales of networking gear. After adjusting for charges, earnings per share came in at 27 cents, easily beating estimates of 24 cents.

• Biotech giant Amgen said fourth-quarter earnings exceeded analysts’ estimates, although it also offered guidance that future results may be lower.