Yes, Earnings Beat Expectations--But Sales Didn't

Phillip Coggan in the Economist makes an important point about the “positive surprise” of corporate earnings in Q1: Earnings beat expections, but revenue didn’t:

Optimists point to America’s first-quarter results, in which 66% of reporting companies beat expectations, according to HSBC…  

[But] Andrew Lapthorne at Société Générale points out that 62% of American companies have missed expectations for sales. That implies the profit improvement is coming from higher margins, something that it is hard to believe can persist given the economic backdrop.

The earnings surprise is good.  But you can’t fire your way to prosperity.  Until companies start surprising on revenue, all this particular “green shoot” shows is that companies are reacting quickly to the recession.

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