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Behind the numbers with Jeffrey Kleintop.

Having climbed all the way back to near the prior peak, earnings growth is slowing. We believe earnings per share growth of closer to 10% is more likely in 2011, well below the 39% EPS gain in 2010. In addition to peaking profit margins, our outlook for 2011 EPS is bound, in part, by continued sluggish revenue growth resulting from sluggish economic growth in the developed markets, including the United States. We expect downward guidance on earnings in the second half of 2011 from business leaders in the coming weeks as they report their second quarter earnings, potentially leading to downward revisions to 2011 earnings by analysts and acting as a headwind for stocks as the earnings season matures.


In recent weeks, second quarter earnings estimates have been falling. Of the 128 companies that preannounced second quarter earnings guidance in recent weeks, the ratio of negative-to-positive news was 2.55, worse than the average ratio of 2.1. For the S &P 500 companies as a whole, the consensus of analysts' estimates have slid, and now point to average earnings per share of growth of just 8% from one year ago, the smallest gain in two years. Earnings growth is below the 10% growth rate of revenues as the rise in profit margins has stalled as businesses have stepped up spending on materials, capital and labor.--LPL financial's earnings season Preview

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Publication:Investment Advisor
Date:Aug 1, 2011
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