Earnings Season Is Off to a Hot Start

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We're in the midst of earnings season, and that means that, finally, financial results are driving stocks instead of daily reactions to the Federal Reserve or the economic news of the day. So far, the numbers have been strong, and stocks have been moving higher. Seventy-five percent of S&P 500 (SNPINDEX: ^GSPC  ) companies that have reported have beaten expectations, and the index hit a new intra-day high on Thursday. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) , on the other hand, isn't as broad, and weak results from a few companies have hurt the index since earnings seasons started, which I'll get to in a minute. 

The outperformers in Q2
The banking industry has been the biggest winner in this year's earnings season. JPMorgan said net income rose 33%, to $6.5 billion, Morgan Stanley's net income jumped 66%, to $980 million, and Bank of America's net income was up 63%, to $4.0 billion. The banking industry has benefited from strong trading revenue, lots of investment banking activity, and lower defaults on mortgages, because home prices are rising. For the time being it appears that big banks are back to their profit-making ways, although we've seen that change at the drop of a hat before. 

UnitedHealth Group (NYSE: UNH  ) was the other big outperformer on the Dow after reporting a 12% rise in revenue during the second quarter. A jump in patients from 76.6 million a year ago, to 89.2 million this year, drove the results, and the entire health-insurance industry followed UnitedHealth higher on Thursday. There's been a lot of worry about the affects Obamacare will have on insurers, but having more people under coverage will be good for these companies, and they don't look to be suffering financially at this point.

The slow death of the PC
While financials and insurers have had a good earnings season, the PC has been the one black eye on earnings season. Microsoft's (NASDAQ: MSFT  ) stock dropped 12% on Friday after reporting earnings that fell short of expectations, due largely to slowing PC sales. Intel's (NASDAQ: INTC  ) stock didn't have the same drop, but revenue was down 5% from a year ago, and net income fell 29%, to $2.0 billion. 

This is where long-term investors and traders often collide during earnings season. Microsoft's numbers were below Wall Street's expectations, which are really nothing more than guesses, but if we put them into some context, they didn't look all that bad. We know PC sales are down and that will be a drag on results, but every single business unit reported an increase in revenue both for the second quarter, and for fiscal 2013. Microsoft's sexy businesses may be declining, but the company is nowhere near being the outcast Wall Street made it this week.

Intel's results also need some context before we call the company a disappointment long term. Falling PC sales have hurt sales, but it appears we're near a bottom, and we may have seen an inflection point for Intel. Sales were up 2% from last quarter and the company projected revenue of $13.5 billion, plus or minus $500 million, which, even at the low end, would be a 2% increase quarter over quarter. 

Both Microsoft and Intel have a long way to go to gain significant mobile market share, but both companies are still dominant in PCs, and the server business is going strong. The growth in these markets will drive the future, and with the tech world molded by just a handful of companies, each product win will be huge for the bottom line. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

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  • Report this Comment On July 20, 2013, at 3:10 AM, Edcft086 wrote:

    On the "surface" issue: A tablet with full Windows-functionality was since long missing. Microsoft made the right step to adapt Windows 8 to tablets. It is the question, whether it was the right decision to enter the hardware-segment because this segment is challenging with a fierce competition. However, due to the newly introduced discount the SurfaceRT has become cheaper than the competitors (like Asus) in the market. albeit not profitable for Microsoft. By pushing tablets with a Windows-operating system Microsoft might regain market share in the tablet-segment which is growing, This step is important due to the decline of the conventional home-PC. Hence Windows-tablets will substitute the conventional PC.

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