10 companies’ profits put smiles on faces

Investors can breathe easier now that the long-dreaded earnings is season winding down. Corporate profits weren’t quite as bad as feared, thanks to some upside surprises.

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Ten companies in the Standard & Poor’s 500, including energy firm Devon Energy (DVN), game maker Electronic Arts (EA) and online retailer Amazon.Com (AMZN), have knocked the cover off earnings estimates for the second quarter so far, according to a USA TODAY analysis of data from S&P Global Market Intelligence. Each of these companies topped earnings expectations by 30% or more as well as exceeded quarterly revenue forecasts.

Big earnings surprises like these helped make the corporate earnings recession less ugly than widely expected. Now that more than 350 companies in the S&P 500 have reported, earnings are looking to be down just 2.2% from the same year-ago period.That’s much better than the 5.2% decline expected when earnings season began.

Investors hope earnings are less bad.

So far 66% of companies have beaten expectations, which is in line with the long-term average. Meanwhile, 42% of companies have beaten revenue expectations in addition to earnings forecasts. Some individual sectors have done better still, such as health care, where 77% of the companies that have reported so far have exceeded earnings and revenue targets.

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Energy overall still is a point of pain. Just 10% of energy companies in the S&P 500 exceeded earnings and revenue forecasts. But two of the 10 companies to top earnings forecasts by 30% or more were energy companies, including Devon and exploration company Diamond Offshore Drilling (DO). Devon was expected to lose nearly 20 cents a share during the quarter but wound up reporting a profit of 6 cents a share. Diamond’s adjusted profit of 16 cents a share was 934% more than the roughly 2 cents a share expected by analysts.

Video-game maker Electronic Arts also pulled out an unexpected profit. The company earned an adjusted profit of 7 cents a share, topping expectations for a loss of more than 2 cents a share. But when it comes to tech, Amazon.Com’s 60% better-than-expected profit was a stunner. The stock is up 4% over the past 30 days, making it one of the most valuable companies in the world at more than $360 billion.

Don’t assume all is clear just yet. Analysts expect S&P 500 companies to post 0.8% earnings growth in the current third quarter. That’s down from the 9.1% growth they expected for the period when asked at the start of the year.

“The expectation that corporate earnings growth will turn positive in the second half rests mostly on forecasts of accelerating economic activity. The apparent absence of momentum at the start of the third quarter raises a new element of doubt about those conditions arising,” says David Joy, chief market strategist at Ameriprise.

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