Apple (AAPL) and AIG (AIG) Account for Almost All of the S&P 500 Earnings Growth

Well the story is even more interesting than that… AIG (yes, *that* AIG) is the other half of the earnings dynamo.  It has had even more of an impact than Apple.  So when you remove those 2 companies, S&P 498 (if you will growth) was a meager 1.1%!   That’s actually quite shocking to me, but perhaps because I tend to follow high(er) growth stories.  Apparently a lot of companies must be declining year over year to offset the high growers.

• Analysts expect profit growth to accelerate later this year. But so far, almost all the growth comes from two companies, one of them among America’s most favorite, the other among its most hated — Apple and the bailed-out insurance company AIG.  Take away those two companies and profits for the remaining 498 are expected to grow a measly 1.1 percent, according to FactSet, a provider of financial data.
• As for AIG, the good news is not that it’s making much money — it isn’t — but that it’s not losing money anymore. Later this month, it is expected to report $1.1 billion in operating profits last quarter, compared with a $2.2 billion loss a year earlier, according to FactSet.  Add it up and the two companies will contribute four of every five dollars of profit growth.
• In a report Thursday highlighting “unusually weak” results so far, Goldman Sachs strategist David Kostin noted that stock analysts have been cutting their estimates for what S&P companies will make for all of 2012.  His projection has profits rising 3 percent this year versus 2011.
• Companies are beating expectations mostly because the expectations have been lowered. In the three months before companies began reporting profits last month, analysts cut estimates for profit growth by more than half.

The reasons for the slowdown are myriad:

• Among the almost 300 companies in the S&P that have reported profits so far (this story was from last Monday, so more companies have reported since), some seem to have run out of ways to cut costs, and are making less profit from each sale, a first in the recovery. To help lift its drooping profit margins, for instance, Colgate-Palmolive said last week that it was raising prices in North America for the first time in two years. Profit fell 5 percent last quarter.
• Other companies point the finger overseas. Dow Chemical, the nation’s largest chemical maker, blamed “considerable weakness” in debt-mired Europe for its profit last quarter of 25 cents per share, before a one-time charge. That was less than expected. 3M, which makes Scotch tape and Post-It notes, is worried about slower growth in emerging markets like China, and says that helps explain its tiny 3 percent profit growth last quarter.
• Still others point to the strengthening U.S. dollar, which means profits that companies collect in foreign currencies like the euro translate into fewer dollars when they’re brought home. In cutting profit forecasts for 2012, Procter & Gamble and Pfizer both cited the stronger dollar. Their stocks have dropped this year.
• But perhaps the biggest reason for the small gains is simple — an investing version of the law of large numbers.  With profits crushed by the Great Recession, it didn’t take much early in the economic recovery for companies to report big increases. But now that profits have climbed fast for two years, it’s harder to show a jump by a similar proportion.  “The base is much more challenging,” says John Butters, senior earnings analyst at FactSet.