U.S. companies' sales are expected to rise for the first time since the third quarter of 2008, but it may be too soon for investors to cheer the turnaround as proof the economy is about to take off.
The 7 percent estimated increase in fourth-quarter sales for corporations in the Standard & Poor's 500 index <.SPX> is largely tied to gains in the financial sector; without that, sales would be up just 2 percent, Thomson Reuters data showed.
The good news is we've turned the corner...(but) the top-line growth is still slow, said Howard Silverblatt, analyst at Standard & Poor's in New York. It's not impressive at this point in time.
Investors have been eager to see a pickup in corporate sales, or top-line growth, after recent lackluster results, with severe cost-cutting boosting profits rather than stronger demand for products and services.
With the fourth-quarter reporting period more than half over, S&P earnings are forecast to rise 206 percent from a year ago. Stronger-than-expected results in the second and third quarters last year helped fuel the S&P 500 index's rally of 70 percent from March lows.
Among the more than 60 S&P 500 companies expected to report next week are The Coca-Cola Co
While sales growth in the financial sector is important because the industry lends money to corporations to build their businesses, sustained revenue growth is needed in nonfinancial sectors for them to increase hiring, Silverblatt said.
It all comes back to jobs, he said.
Employment has been among the weakest areas of the U.S. economy and has kept optimism about the recovery in check.
Even Friday's U.S. monthly jobs report showed that while the unemployment rate slipped to a five-month low at 9.7 percent, the number of non-farm payroll jobs as measured in a separate survey declined. Analysts had expected a rise.
What we think will still be a problem earnings-wise is the consumer. It's much harder to get that top-line growth, said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio.
The big gain in financials is tied to easy comparisons from year ago when the economic downturn took a huge toll on corporate results, and especially in the financial sector, analysts said.
They're the big driver, and it's because they had such a weak year-ago quarter, said John Butters, director U.S. earnings for Thomson Reuters.
Overall this reporting period, the majority of companies are beating estimates on both earnings and revenue.
Some 74 percent of S&P 500 companies that have reported have beaten earnings estimates, while 71 percent have surpassed analysts' revenue expectations.
The fourth-quarter earnings beat record would be second-highest since Thomson Reuters began tracking data in 1994, with the third-quarter's 79 percent beat record the highest.
With revenue, investors should look more to quarter-to-quarter results, said Charles Lieberman, chief investment officer of Advisors Capital Management, LLC in Paramus, New Jersey.
Revenue for S&P 500 companies was down 10 percent in the third quarter versus the year earlier and down 14 percent in the second quarter, according to Thomson Reuters data.
We are seeing impressive pattens, and positive comments from companies including Cisco Systems Inc
Cisco this week announced results and an outlook that exceeded Wall Street expectations and said it saw a big, across-the-board acceleration in its business.
(Editing by Kenneth Barry)