In the U.S.: Stock Futures Rise on Better-Than-Estimated Earnings

27 April 2012

Despite the Spanish downgrade, positive earnings results lift U.S. markets…”chance of a recession is dimming.”

U.S. stock futures rose, indicating the Standard and Poor’s 500 Index will cap the biggest weekly rally in a month, amid better-than-estimated results at companies including Amazon (AMZN).com Inc. and Ford Motor Co. (F)

Amazon, the largest Internet retailer, surged 18 percent after it beat analysts’ revenue and earnings estimates. Ford rose 0.8 percent as the automaker said profit fell less than analysts had forecast. Starbucks Corp. (SBUX) fell 4.1 percent as the biggest coffee-shop chain reported same-store sales that trailed projections. Procter & Gamble Co. slid 2.3 percent as the largest consumer-products company cut its profit estimate.

S&P 500 futures expiring in June advanced 0.4 percent to 1,401.70 at 9:04 a.m. New York time, maintaining gains after the Commerce Department said the U.S. economy grew at a 2.2 percent annual rate, less than forecast. The benchmark gauge for U.S. equities has risen 1.6 percent since April 20 and was poised for a back-to-back weekly gain. Dow Jones Industrial Average futures rose 29 points, or 0.2 percent, to 13,189.

“The economy is not gangbusters, but the chance of a recession is dimming,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a telephone interview. “We’re encouraged by the earnings surprises. We’re not happy with today’s GDP data, but it shows domestic spending being on track.”

More than 75 percent of the 270 companies in the S&P 500 that reported results since April 10 have topped analysts’ estimates, according to data compiled by Bloomberg. Eight out of 10 groups in the S&P 500 delivered better-than-forecast results, as financial, telephone andtechnology companies led with a positive rate of more than 10 percent, the data showed. Earnings rose 6.9 percent on average, according to the data.

Economic Data

Equity futures rose even after data showed the U.S. economy expanded less than forecast in the first quarter as a smaller contribution from inventories overshadowed the biggest gain inconsumer spending in more than a year. Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2.2 percent annual rate. A separate report may show the Thomson Reuters/University of Michigan final index of consumer sentiment cooled from a one-year high.

Stocks advanced along with the economy in the first quarter. The S&P 500 climbed 12 percent, including a 3.1 percent gain in March. That marked the strongest three-month start to a year since the first quarter of 1998. (SPX) The benchmark gauge has rallied 11 percent in 2012 and is down 0.6 percent this month. If the S&P 500 erases its April drop, it will cap the fifth straight month of gains, the longest winning streak since 2009.

Amazon Surges

Amazon surged 18 percent to $230.85. Chief Executive Officer Jeff Bezos is looking to add customers by pouring money into new versions of the Kindle and warehouses that are equipped to send out products faster. In the quarter when it was introduced last November, the Kindle Fire tablet rocketed to No. 2 in the market behind Apple Inc.’s iPad, according to IDC.

Ford added 0.8 percent to $11.96 after posting its 12th consecutive profitable quarter. While fuel-efficient models championed by Chief Executive Officer Alan Mulally won over U.S. consumers, potential car buyers in Europe stayed home amid a worsening financial crisis.

Starbucks retreated 4.1 percent to $58.19. Sales at stores open at least 13 months rose 7 percent globally in the quarter. Analysts projected a gain of 8.2 percent, the average of 17 estimates compiled by Consensus Metrix. Such sales fell 1 percent in Europe, the Middle Eastand Africa amid “slight decreases” in transactions and average check, Starbucks said.

‘Just Cautious’

Customers in Europe “are just cautious, as you would expect, not unlike what they were like in the U.S. three and four years ago,” Chief Financial Officer Troy Alstead said in an interview. Starbucks “is not immune from that,” he said.

P&G (PG), the maker of Pampers diapers and Gillette razors, fell 2.3 percent to $65.30. Household-products makers including P&G have raised prices in the past year to counter higher expenses for raw materials. Last week, Kimberly-Clark Corp. (KMB), the maker of Huggies diapers and Kleenex tissues, reported a 34 percent increase in quarterly profit that was helped by price increases.

Utilities are poised to become the only one of the S&P 500’s 10 main industry groups whose investors receive dividends on every stock. AES (AES) Corp. and NRG Energy Inc. (NRG), two independent power producers, plan to introduce payouts during the second half. They are the only utilities in the S&P 500 that don’t already provide dividend income.

Dividend Ranking

The industry currently has the fourth-highest percentage of dividend-paying shares. Raw-material (S5MATR) producers, makers of food, beverages and other consumer staples, and industrial companies are the top three, in that order.

More than 80 percent of S&P 500 companies pay dividends, said Howard Silverblatt, a New York-based senior index analyst at S&P. The figure is the highest since January 2000. Nasdaq OMX Group Inc. sent the percentage above that threshold two days ago by declaring a quarterly payout of 13 cents a share.

AES plans to distribute $120 million a year, starting in the fourth quarter. That’s equivalent to an annual dividend of about 16 cents a share. The Arlington, Virginia-based company’s most recent payout was in 1994, four years before joining the S&P 500, according to data compiled by Bloomberg.

NRG, a component of the index since 2010, plans to begin paying dividends in the third quarter. Investors would receive 36 cents a share annually. The company, based in Princeton, New Jersey, made a similar proposal in 2007 that was scrapped after a bid to refinance debt failed.


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