S&P 500 Posts Record Earnings In 2005

February 08, 2006

S&P predicts one more quarter of double-digit profit growth before the slowdown; share buybacks do their part.

It's like that T-shirt you see in tourist towns from Key West or Bar Harbor:

The record earnings will continue until the morale improves.

Despite the fact that the S&P 500 Index hovers 17 percent below its all-time high, earnings for S&P 500 companies continue to set record after record.  Standard and Poor's (S&P) said that index earnings rose 14.4 percent in the fourth quarter of 2005 to a new record, pushing full-year 2005 earnings up 13.5 percent, also to a new record.. 

Results in the fourth quarter were led by Energy, which posted a 59 percent profit improvement over year-ago levels; Materials dragged, with profits down 4.6 percent for the year.  For the year, Consumer Dicretionary was the only sector to suffer that wonderful Wall Street contradiction in terms - negative growth - with proifts down 5.6 percent from 2004 levels.

Q4 marked the fifteenth consecutive quarter of double-digit earnings growth for the index, an unmatched streak.  S&P expects that streak to run one more quarter, calling for an 11.8 percent increase in earnings for Q1 2006.  But that's when the party stops, or at least gets a little more boring: S&P expects Q2 earnings growth to slow to a pedestrian 7.7%.

"After 16 consecutive quarters of double-digit gains, companies are finding it increasingly difficult to post record earnings," Howard Silverblatt, senior index analyst at Standard & Poor's.. "Standard & Poor's believes that second quarter earnings will reflect a slower growth rate, and snap the 16 quarter record of double-digit gains."

S&P expects the market to be led in 2006 by the Consumer Discretionary section, which will reverse its negative growth from 2004 to post profit increases of 17.4 percentpercent.  Utilities and Telecommunication Services are also expected to show increased growth, while Energy, Information Technology and Materials fall back to earth.

Sector

EPS Growth, 2005 over 2004

EPS Growth, 2006 over 2005

Consumer Discretionary

-5.6%

17.4%

Consumer Staples

3.9%

3.6%

Energy

45.4%

11.2%

Financials

6.1%

8.7%

Health Care

8.6%

10.6%

Industrials

23.8

12.3%

Information Technology

19.0%

11.8%

Materials

18.6%

5.2%

Telecommunication Services

9.0%

14.0%

Utilities

8.7%

17.7%

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