Big Earnings Cloud Economic Outlook

The Dow Jones Industrial Average (NYSEARCA:DIA) continues to struggle near 12,700 as earnings paint a cloudy picture for the economy.  According to Thomas Reuters, nearly 20 percent of the companies in the S&P 500 (NYSEARCA:SPY) have reported earnings, but only 58 percent beat analysts expectations.  This is well below the 70 precent beat rate that is normally seen.

On Tuesday, several big Dow components reported earnings, however, the index still closed 33 points lower.  McDonald’s (NYSE:MCD) reported solid results, but shares still declined more than 2 percent in trading.  Net income for the fast-food giant increased almost 11 percent to $1.38 billion ($1.33 per share), while revenue increased 9.8 percent to $6.82 billion.  Analysts were expecting earnings of $1.29 per share on revenues of $6.8 billion.  However, other major blue-chip members did not fair so well in the recent quarter.

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DuPont (NYSE:DD) and Verizon (NYSE:VZ) both reported disappointing results.  DuPont reported a decline of 0.8 percent in net income, snapping its streak of three straight profit rises.  While the manufacturer and chemical producer beat analysts estimates, it missed its own guidance it had reduced in December.  Meanwhile, Verizon reported net income of 52 cents per share, missing estimates by one penny.  On the positive, thanks to Apple’s (NASDAQ:AAPL) new iPhone 4S, customers using smartphones surged 44 percent.  “Verizon finished 2011 very strong, both in terms of revenue growth and by delivering an 18.2 percent total return to our shareholders for the full year, and the company has great momentum for 2012,” said Lowell McAdam, Verizon president and chief executive officer.

The Travelers Companies Inc. (NYSE:TRV) and Johnson & Johnson (NYSE:JNJ) both reported heavy net income declines.  Compared to the prior year, Travelers net income declined 31 percent to $618 million ($1.51 per share), while J&J net income plummeted 89 percent to $218 million (8 cents per share).  However, neither company missed estimates.  Travelers net earnings per share fell in line with estimates, and J&J beat estimates by 3 cents.

Going forward, it will be interesting to see if the earnings season and future guidance can improve enough to push U.S. markets higher.  The International Monetary Fund warned on Tuesday that the ongoing European debt crisis is casting a shadow on the economic outlook for most of the world, causing the IMF to lower its growth forecasts for all but one country: the United States.

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