S&P 500 Earnings Beat at 76% as Microsoft Offsets 3M

Earnings from Microsoft Corp. (MSFT) to Caterpillar Inc. (CAT) to General Motors Co. (GM) came in higher than analysts anticipated today, reflecting a pickup in demand across industries as consumer confidence recovers in the U.S.

Baby-formula maker Mead Johnson Nutrition Co. (MJN) also topped analysts’ estimates, while Starbucks Corp. (SBUX) and Amazon.com Inc. came in line. The pace at which Standard & Poor’s 500 Index first-quarter earnings exceeded predictions reached almost 76 percent for the season so far, according to data compiled by Bloomberg. About 60 percent of companies have yet to report.

The results, combined with an increase in orders for durable goods last month and an improving U.S. labor market, bolstered optimism that businesses are snapping back from a slowdown during the harsh winter. Apple Inc. (AAPL) surprised investors yesterday with stronger-than-expected iPhone sales and an increase of its dividend and share buyback program.

Microsoft’s earnings were lifted by new Chief Executive Officer Satya Nadella’s push into cloud computing. Caterpillar, the world’s largest maker of construction machinery, boosted its full-year profit outlook on construction prospects while the mining industry continues to disappoint. And GM avoided posting its second quarterly loss since bankruptcy as higher prices on new pickups made up for the costs of recalls.

The positive surprises from Apple, Detroit-based GM and Facebook Inc. (FB), whose profit and revenue yesterday blew past estimates, were mitigated by disappointing quarterly earnings from other large companies, including Atlanta-based United Parcel Service Inc. (UPS) and 3M Co. (MMM)

UPS, 3M Disappoint

UPS, the world’s biggest package shipping company, joined FedEx Corp. among the 20 biggest negative earnings surprises so far, the data show. UPS sees its annual profit forecast at the low end of an earlier projection after the winter storms increased costs. Meanwhile 3M, the St. Paul, Minnesota-based maker of Scotch tape and auto insulation, was hurt by slowing demand in Latin America and weaker foreign currencies.

At Amazon, Chief Executive Officer Jeff Bezos is continuing to pump money back into new services such as a grocery-delivery program to fuel future growth, limiting current profit. Starbucks, the world’s biggest coffee-shop operator, still raised its full-year profit forecast after its first quarter matched the average estimate. Non-coffee offerings such as breakfast sandwiches, juice and tea are boosting U.S. sales.

Lower Expectations

Companies have been downgrading expectations coming into the season and analysts now anticipate that S&P 500 earnings gained 0.7 percent last quarter while sales rose 2.6 percent, according to data compiled by Bloomberg. That’s down from estimates a month ago that gains would be 1.9 percent and 3 percent, respectively.

“Lots of analysts have an overly pessimistic macroeconomic view,” Brian Wesbury, chief economist at First Trust Portfolios LP, said yesterday in an interview. “That’s causing estimates overall to be lower than they should.”

Wesbury, whose firm supervises $88 billion in assets, was the eighth-best forecaster for the U.S. economy in the first quarter, according to Bloomberg Rankings.

Some companies continue to be conservative in their outlooks. While Under Armour Inc. (UA), the maker of sweat-wicking athletic apparel, increased its annual sales forecast, the new projection still trailed some analysts’ estimates. The stock slumped the most in more than two years.

There are signs consumer confidence is improving. The Bloomberg Consumer Comfort Index climbed to minus 25.4 in the period ended April 20, the second-strongest level since January 2008, from minus 29.1 the prior week. And a Commerce Department report today showed the biggest increase in computers and electronics orders since November 2010 in March.

Tomorrow’s results include Ford Motor Co., Moody’s Corp. and Colgate-Palmolive Co.

To contact the reporter on this story: Cecile Daurat in Wilmington at cdaurat@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net Cecile Daur, John Lear

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