With the U.S. economic recovery proceeding so slowly, the big stories once again this earnings reporting season are whether companies are growing revenue, as opposed to boosting profits through cost-cutting, and whether end-market demand is increasing.
As we’ve also talked about, companies are sitting on an extraordinary amount of cash right nowbecause of uncertainty about both the economy and higher costs in 2011.
In fact, of the first 175 companies in the S&P 500 to report, profits are up 42% while sales have increased only 7%, according to a New York Times article today. Ten percent of companies had higher profits on lower sales, almost double what used to be the typical number.
We heard from one of the most important companies late last week, and the news was surprisingly good. Caterpillarreported earnings Thursday, and it is a true bellwether because it is the world’s largest manufacturer of construction and mining equipment. If sales of their equipment are strong, then the companies buying the equipment clearly have enough business or expect enough business to make the expenditure.