Dow Stocks Preliminary Earnings Review - First Quarter 2009

With Verizon Communications (VZ: 30.11 -0.50%) reporting their first quarter results this morning, we have now had 20 of the 30 Dow components report their earnings for the first quarter 2009. You may be surprised to learn that the results have been overwhelmingly positive.

Only 4 out of the 20 reporting companies have reported worse than expected earnings. That means that 80% of the reporting Dow stocks have performed inline or better than Wall Street was expecting. Only Alcoa (AA: 10.83 +2.95%), Merck (MRK: 35.35 -0.76%), Boeing (BA: 63.39 +1.77%) and 3M (MMM: 81.87 +1.06%) had earnings that were below Wall Street’s consensus estimates.

Unfortunately, the better than expected Dow stocks earnings performances are due to exceptionally low expectations rather than true outperformance. Analysts on Wall Street have been cutting earnings estimates furiously as the realities of the current economic recession become more apparent. So while Dow stocks are beating those expectations, the headline numbers themselves are quite negative.

Only 20% (4 of the 20 reporting companies), posted first quarter EPS that was actually higher than last year’s first quarter results. Bank of America (BAC: 13.28 +0.55%), IBM (IBM: 125.04 -0.58%), McDonald’s (MCD: 75.02 +0.64%) and Verizon all posted higher EPS than they had in the first quarter of 2008.

That leaves 16 Dow stocks that saw their earnings performance deteriorate in the first quarter of this year. 10 of those Dow stocks saw their EPS decline over 40% from last year.

The strong earnings performance, along with the fact that 18 out of 20 Dow stocks reported operating profits certainly is cause for optimism. However, the optimism should definitely be measured. Expectations will need to remain quite low in the coming quarters. If we suddenly expect that a market recovery is here, we could end up grossly disappointed next quarter when America’s blue chip stocks report disappointing earnings results.