Wednesday, May 31, 2006

Talking Earnings With S&P's Howard Silverblatt

I interviewed Howard Silverblatt of Standard & Poor's yesterday. He's the guy who tracks all the earnings numbers. According to Howard, first quarter results were stronger than expected. Operating earnings were up 14.9%, the best showing since the fourth quarter of 2004. Perhaps not unexpectedly, the Energy sector did best with a 36% gain in operating earnings. Telecommunications was the only sector that experienced a year-over-year decline. Operating earnings in this sector fell 1.3%.

Howard also talked about the record amounts of cash corporations are holding. With interest rates rising, these companies are generating a growing amount of interest income. While this extra income gives a nice boost to the bottom line, it isn't necessarily a good thing. After all, non-financial companies should be generating income from operations--not from investments.

We also talked about all the buyback activity that's been going on. Buybacks, or share repurchases, are generally a good thing. However, because buybacks reduce the share count, investors should not be fooled by the impressive growth in per share earnings when absolute earnings are growing much more slowly. Howard used Exxon Mobil to illustrate this point.

Finally, he gave his outlook for the current quarter and the rest of 2006. He thinks investors will be disappointed with second quarter results, but he expects things to improve during the second half of the year. This MoneyMasters interview will be available tomorrow morning at 6:00 am on the Video Network.