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Continued: Earnings scorecard: Banks set the pace for second-quarter profits, technology companies lag

  • Article by: STEVE ROTHWELL , AP Markets Writer
  • Last update: July 26, 2013 - 3:55 PM

"Technology companies are where we've seen some of the biggest disappointments in terms of earnings," said Kate Warne, an investment strategist at Edward Jones. "The older technology companies have been a bit slow to move to newer areas."

GLIMMER OF LIFE IN EUROPE?

The slump in Europe may not be over, but there are some signs of hope, judging from comments made by executives at industrial companies.

That's good because many U.S. companies rely heavily on sales to Europe. Deutsche Bank's chief U.S. equity strategist, David Bianco, estimates that 17 percent of the profits at S&P 500 companies come from the region.

General Electric's CEO, Jeff Immelt, told analysts on a conference call that Europe has stabilized. GE's orders increased 2 percent in the period after falling 17 percent in the first three months of the year.

Honeywell, another industrial conglomerate, said that while conditions remained tough, there were hopeful signs. The company's CEO, David Cote, said that while it was difficult to envisage a "big bounce," demand in Europe was "encouraging." Its turbocharger business did better, as did its sensor and controls business.

A turnaround in Europe would be welcome news for industrial companies. The sector is on track to report flat earnings for the April-through-June period.

CLEARING A LOW BAR

While most companies' earnings have been beating analysts' expectations, their performance on revenue was less impressive. Second-quarter revenue for S&P 500 companies is forecast to drop 0.6 percent, the first decline since the third quarter of 2009.

That suggests companies are increasing their profits by cutting costs, rather than boosting their sales. That's a trend that can only run so far.

"There's not a whole lot of room left in terms of improving profit margins," said Paul Mangus, head of equity research and strategy at Wells Fargo Wealth Management. "We need to see more top-line growth if you're going to see more robust earnings."

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