Profits Are Making a Comeback

livemint.com:

The profit slump is over. Third-quarter earnings season is getting under way, and it will likely be much better than the second quarter’s for U.S. public companies.

Industry estimates indicate that members of the S&P 500 will report earnings per share were 1.3% higher than a year earlier—a nice improvement from the second quarter’s decline of 2.8%. Moreover, current estimates almost certainly understate the third quarter’s strength given analysts’ tendency to lower their forecasts in the lead-up to earnings season. In early July, for example, they were looking for a second-quarter S&P 500 earnings decline of 6.4%.

The S&P third-quarter earnings estimate is also getting damped by an estimated 34.7% decline in energy-sector earnings—the consequence of fuel costs that were much lower than a year earlier. S&P 500 earnings excluding energy are expected to show a 6.2% gain after rising 3.6% in the second quarter. Finally, analysts reckon that profit growth in the fourth quarter will be substantially better, with estimates pointing to S&P 500 earnings up 10.8% from a year earlier.

This figure needs to be taken with some skepticism—analysts might be unduly pessimistic about companies’ third-quarter earnings. But, if history is any guide, they are probably too optimistic about earnings in the fourth quarter and beyond. Even allowing for analysts’ sunny dispositions, though, earnings growth seems likely to pick up.

And chief financial officers—who often play Eeyores to chief executives’ Tiggers—expect earnings to pick up next year, according to a recent survey conducted by Duke University and the Federal Reserve Banks of Atlanta and Richmond. In several respects, this is surprising. Labor is a major cost at most companies, and