What Earnings & Revenues Are Saying About the Market

stock market newsEarnings and revenues are largely dictating trading at this time as evidenced by the volatility in the market. The results have so far been mixed and there is some concern towards revenue growth.

Bellwether General Electric Company (NYSE/GE) reported its first profits since 2007; yet a four-percent year-over-year (yoy) decline in revenues is a red flag, since GE is widely considered to be a barometer for the economy due to its diversified businesses in industrial, medical and energy.

We saw strong earnings and optimism going forward from Caterpillar Inc. (NYSE/CAT), 3M Company (NYSE/MMM), United Parcel Service, Inc. (NYSE/UPS), and AT&T Inc. (NYSE/T). The results are helping to offset revenue concerns at other companies that have reported.

In tech, the results have been mixed. There was a strong quarter from Apple Inc. (NASDAQ/AAPL), as the company easily beat EPS and revenue estimates. The company also offered higher revenue guidance. Earnings surged 78% yoy to $3.51 per diluted share, well above the $3.11 estimate. Revenue growth was 61% yoy, which is what traders want to see from companies.

Amazon.com Inc. (NASDAQ/AMZN) fell short on earnings, but managed to report a 41% surge in revenues, which is positive. Tech heavyweight Microsoft Corporation (NASDAQ/MSFT) also beat on earnings on a 22% rise in sales. Again encouraging to see the revenue growth, but Microsoft made a downward revision in its FY10 sales guidance.

Technology bellwether International Business Machines Corporation (NYSE/IBM) barely beat on its second-quarter earnings and came up about 500 million dollars short on revenues, which I view as worrisome. It’s something that I felt was crucial for this market to advance higher. To make matters worse, IBM also projected 2010 EPS that was a penny below Street estimates. Texas Instruments Incorporated (NYSE/TXN) was also slightly short on revenues, but was positive towards the third quarter. eBay Inc. (NASDAQ/EBAY) beat on EPS, but revenue growth was a mere six percent and the company cut the upper end of its revenue guidance for 2010. Online DVD renter Netflix, Inc. (NASDAQ/NFLX) and drive maker Western Digital Corporation (NYSE/WDC) were also both short on the revenue side. The revenue shortfalls added to the revenue issues at Google Inc. (NASDAQ/GOOG) and Yahoo! Inc. (NASDAQ/YHOO).

The lack of consistent revenue growth indicates that there may still be some demand issues from companies wanting to spend in face of the sluggish economic growth. Yet, American Express Company (NYSE/AXP) easily beat on EPS and reported a 13% rise in revenues. The results are encouraging, suggesting a pickup in consumer spending by cardholders.

In the banking sector, the results have largely been strong, but there continue to be issues with loan demand. There were strong results from Wells Fargo & Company (NYSE/WFC), Morgan Stanley (NYSE/MS), and JP Morgan Chase & Co. (NYSE/JPM). The Goldman Sachs Group, Inc. (NYSE/GS) missed on revenues. The Bank of America Corporation (NYSE/BAC) and Citigroup, Inc. (NYSE/C) reported mixed results and indicated that there were continued problems with lackluster loan demand. A plus is a decline in loan losses indicating that borrowers are able to better pay back loans.

The results are mixed, but we are seeing some positive growth in revenues. This is very important and is needed to drive sustainable gains in stocks.