Good news: profits are back. Bad news: it hurts like hell to get them.
With Q2 reports starting to come in, several high-profile companies have turned in positive results, and a few -- like Caterpillar (NYSE: CAT), IBM (NYSE: IBM), Pfizer (NYSE: PFE), 3M (NYSE: MMM), and Lowe's (NYSE: LOW) -- have even upped the ante for the rest of the year.
Expectations were low, making the outcomes look surprisingly strong. According to a Thomson Reuters, a third of the biggest companies in the United States that have turned in their Q2 results, and 76% of them have beaten analyst expectations. Less than a fifth of them are losing money.
To give credit where it's due, the profits are in, and things look a lot better than we thought they would nine months ago. We're not going to see a recovery without that initial spark (which the Q2 results may or may not be), so we should celebrate even the smallest of successes.
All profits are not equal, though. Those that come from increases in sales are better, as they show signs of health and the possibility of growth. Profits that arrive following cuts simply suggest that there was fat just waiting to be trimmed. What we're seeing right now, for the most part, is the latter. And, since you can't cut your way to growth, these are generally one-time opportunities that don't speak to future success.
On the other hand, the upward revisions on profit forecasts suggest that public companies expect revenues to ramp up through the rest of the year. Unfortunately, consumer sentiment is in the crapper, and unemployment is still too high. If we need to spend our way out of this recession, the money has to come from somewhere, and cost-cutting simply isn't going to do it.
Celebrate the good or lament the bad? I think I'll just hang back and see what happens.
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Reader Comments (Page 1 of 1)
7-26-2009 @ 2:11PM
Dan Barnett said...
Mel Brooks said it best over 40 years ago, "Hope for the best; expect the worst."