A Review of U.S. Earnings Week, April 23-27, 2012 (XLF, XLE, XLK, DIA, XLY)

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grades1 A Review of U.S. Earnings Week, April 23 27, 2012 (XLF, XLE, XLK, DIA, XLY)This week’s US earnings reports were led by the Financial and Tech Sector companies, with the Energy and Industrial Sector companies reporting negative results

The week of April 23, 2012 resulted in more U.S. companies reporting earnings.  During earnings season, the stock market can be greatly influenced by how well companies are performing on their balance sheets.  Analysts continue to hope that the earnings season will provide a tailwind to help propel the markets back toward the highs they were achieving earlier in 2012.

Beginning with the Financials sector (NYSEARCA:XLF), Zions Bancorporation (NASDAQ:ZION) reported its Q1 2012 earnings late on Monday, April 23.  Its first quarter net income was $25.5 million, $0.14 per share.  This was a 42.6% decline from Q4 2011 when it reported net income of $44.4 million, $0.24 per share, though it was a 72.2% increase from Q1 2011 when it reported net income of $14.8 million, $0.08 per share.  Zions reported net operating earnings of $60.1 million, $0.33 per share, which beat the consensus EPS estimate of 25 cents.  Still, the fact that it declined from its Q4 2011 earnings made this more of a downer on earnings as compared to many of the other companies reporting their earnings.

SunTrust Banks Inc. (NYSE:STI) reported Q1 2012 earnings on Monday, April 23.  The company stated that its first-quarter earnings increased by 38.8% from the same period in 2011 due to lower loan charge-offs and delinquencies, as well as from moderate improvements on new lending.  Its reported net income was $250 million, $0.46 per share, as compared to $180 million and $0.38 per share in the first quarter of 2011.  This easily beat analysts’ estimates of $0.33 per share.  As with other regional banks, SunTrust was also helped by higher mortgage income totaling $63 million in the first quarter as compared to a $62 million loss in Q4 2011 and $1 million loss in Q1 2011.

Turning to the Energy sector (NYSEARCA:XLE), Conoco (NYSE:COP) reported on Monday, April 23 that its first-quarter profit fell 3% due to declines in production and in lower refining earnings.  Its net income dropped to $2.94 billion, $2.27 per share, as compared to $3.03 billion, $2.09 per share, in Q1 2011.  When you exclude one-time costs and gains related to asset sales and write-downs, the profits were $2.02 per share, which was 6 cents less than what analysts were forecasting. 

Further disappointing news came from Conoco’s refining profit, which slipped 6.2% from Q1 2011 to $452 million, far below Raymond James’ estimate of profits over $600 million.  Raymond James’ estimate of $500 million for general and administrative estimates was also far off of the mark as compared to actual expenses, which totaled $685 million, increasing 37% over this same period in 2011.

Chevron (NYSE:CVX) reported its Q1 2012 earnings on Friday, April 27.  Analysts were expecting $3.27 per share, and Chevron matched that exactly.  Its world production of oil was down to 2.63 million barrels of oil-equivalent per day from the 2.76 million from Q4 2011.  This made it fall below analyst expectations of $2.7 million.  However, revenue was slightly up from last quarter, rising from $60.3 billion to $60.7 billion.

Exxon Mobil (NYSE:XOM) did not have a good Q1 2012 either, as it reported less than stellar earnings on Thursday, April 26.  Exxon produced less natural gas and oil, its profits dropped at U.S. refineries and chemical plants, and the company’s overall profits dropped 11%; this decline was the first time there was a decline in quarterly earnings since late 2009.

Exxon reported earnings of $9.45 billion, $2.00 per share, which was far below Wall Street’s expectations of $10.7 billion, $2.14 per share, the amount Exxon made in Q1 2011.  Exxon’s revenues did increase by 8.8% to $124.1 billion, but even this was short of Wall Street’s forecasts. 

Turning to the Tech sector, Texas Instruments (NASDAQ:TXN) reported Q1 2012 earnings late on Monday, April 23.  Net income declined to $265 million, $0.22 per share, from $666 million, $0.55 per share, in Q1 2011.  This was considerably lower than analysts’ expectations of $0.29 per share.  However, Texas Instruments did beat analysts’ estimates for revenues of $3.06 billion, as it reported revenues of $3.12 billion. 

Texas Instruments believes it will have a strong second quarter of 2012, estimating earnings per share of $0.30-$0.38, translating into revenues of $3.22-$3.48 billion.  Analysts’ estimates for Q2 2012 fall in that range, estimating $3.29 billion, though a higher earnings per share of $0.40 per share.

Xerox (NYSE:XRX) reported its Q1 2012 earnings on Monday, April 23, and it beat analysts’ estimates.  Earnings were at $0.23 per share, slightly higher than analysts’ expectations of $0.22 per share.  However, net income did drop from $281 million, $0.19 per share, in 2011 to $269 million, also $0.19 cents per share, in 2012.  Xerox is being aided by its 2010 acquisition of Affiliated Computer Services, Inc., as it attempts to expand into markets that manage and automate electronic payments for governments and processing claims for insurers.  Xerox stock rose 0.1% to $7.88 at the closing bell.  Xerox stock has declined 23% over the past 12 months.

Apple (NASDAQ:AAPL) reported its Q1 2012 earnings after the closing bell on Tuesday, April 24, and it essentially blew the lid off of analysts’ estimates.  All the talk about Apple’s doom and gloom after the recent fallback in its stock prices look to be just talk for now – Apple reported $39.2 billion in revenue and $11.6 billion in profit, resulting in $12.30 per share.  This blew away analysts’ expectations of $36.81 billion in revenue and $10.06 earnings per share.  This was also a marked increase from Q1 2011 when Apple reported $24.7 billion in revenue and $6 billion in profit, increases of 58.7% and 93.3% respectively.

The major reasons why Apple excelled so much:  35.1 million iPhones and 11.8 million iPads were sold in Q1 2012, increases of 88% and 151% respectively over Q1 2011.  These sales more than compensated for just the 7% percent growth in Mac unit sales and a 15% decline in iPod unit sales.  Analysts had predicted sales numbers of 30 million iPhones.  One important note is that Apple’s iPhone sales seemed to be stronger outside of the U.S., as both Verizon (NYSE:VZ) and AT&T (NYSE:T) showed pretty sharp declines in its quarter-to-quarter iPhone activations. 

Speaking of AT&T (NYSE:T), the company reported Q1 2012 earnings on Tuesday, April 24 as well.  It was a mixed bag, as AT&T did not add many new monthly contract customers (only 186,000, and most of those purchasing iPads), but it still managed to post a profit due to the fact that it is making considerable money from the data plans of existing customers.  AT&T reported net income of $3.6 billion, $0.60 per share, a bit higher than the $3.4 billion from Q1 2011.  Revenues climbed 1.8% to $31.8 billion. 

Revenues from wireless data increased by 19.9% to $6.1 billion from Q1 2011.  AT&T reports that 60% of its data customers are paying for their tiered data plans, with 70% of those choosing the more expensive plans. 

Corning (NYSE:GLW) reported its Q1 2012 earnings on Wednesday, April 25.  It reported sales of $1.9 billion, being led by a 13% sales increase in its Specialty Materials business, including the popular Gorilla Glass.  This is on par with its report from the same quarter in 2011, a well as a 2% increase over its report from Q4 2011.  The EPS was $0.30, lower than both Q1 and Q4 2011, but higher than analysts’ earnings by 1 to 2 cents.  Several of its other sections, including telecommunications sales and Environmental Technologies sales, also saw increases.

However, the news wasn’t all good for Corning, as its largest business, Display Technologies, only recorded sales of $705 million, an 11% decline from Q1 2011 and a 10% decline from Q4 2011. 

Amazon (NASDAQ:AMZN), much like Apple (NASDAQ:AAPL), blew away analysts’ expectations with its Q1 2012 earnings report after the closing bell on Thursday, April 26.  This is despite a drop in 35% earnings for Q1 2012.  After a regular session gain of 0.8% to $195.99, Amazon stock gained over 13% in after-hours trading. 

How was Amazon able to do so well despite a significant drop in earnings?  This was largely due to a growing number of third-party sales on Amazon’s site.  While Amazon only gains a small percentage of these sales, the percentage offers higher profit margins than on many of the items that Amazon sells itself.

Amazon reported a net income of $130 million, $0.28 per share.  This was a drop-off from Q1 2011, as Amazon reported a net income of $201 million, $0.44 per share (35.3% and  36.4% decline, respectively).  Amazon’s operating income for Q1 2012 was $192 million, a decline of 40%, which implied an operating margin of 1.5%.  Revenue, however, rose by 34% to $13.18 billion, beating analysts’ forecasts of $12.9 billion, $0.06 per share. 

Many categories of products sold on Amazon increased for Q1 2012, including 19% for media products, 43% for electronics and other general merchandise sales, and 61% for its “other” category (which includes its new and growing cloud-based Web services business).

One cautionary note: Amazon is still heavily spending in order to support its growth, as it plans to open 13 new distribution centers during 2012.  It also added 9,400 employees to increase its overall employee number to 65,600.  This led to operating expenses increasing by 36% to $13 billion for Q1 2012, slightly ahead of revenue growth.

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