Second quarter earnings season is less than stimulating, so don’t worry about muted earnings growth. Instead, focus on revenue, says Jack Ablin, CIO at BMO.
Expectations for earnings have been low, with analysts predicting profit declines all around, writes Ablin in a market update. Energy stocks are being hit the hardest, driven by the collapse in oil.
So far most of the companies that have reported earnings have beat the Wall Street projections, but about the same amount have fallen short of revenue projections, says Ablin. Revenue is what really matters, he says.
“Anyone taking entry-level accounting knows that to some extent earnings are in the eye of the beholder; the numbers are about as organic as a box of Twinkies,” writes Ablin. “Revenues plainly cannot be massaged as easily as earnings and the fact remains that Corporate America is struggling to generate incremental sales from one year to the next.”
Photo: BMO