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Earnings reports for the second quarter are starting to flood in. As of the market close Thursday, A total of 122 companies in the S&P 500 have reported, or 24.4% of the total.

As in recent quarters, positive surprises dominate disappointments, currently by a ratio of 2.79:1. The median surprise is a very healthy [but somewhat below where we have been at the similar stage of most recent quarters with recent quarters] 2.36%. The median growth rate among those that have already reported is 9.38%, that is within striking distance of yet another quarter of double-digit median year-over-year growth [would make it 20 in a row].

However, to get there it will require that positive surprises continue to dominate disappointments. The median expected growth rate of those still to report is 8.50%. Are the firms that have reported so far a representative sample of the S&P 500 as a whole? Well clearly some sectors have seen far more firms report already than others [two sectors have zero reports in and another only a single report]. If we look at the full year growth expectations for the reported group [10.2%], they are more than a full percentage point lower than the expectations for the yet to report group [11.3%]. Thus if the sample is biased, it is biased towards lower growth firms having already reported.

Currently, the leading sector for growth is Energy, but don't expect that to last, as it is based on only one firm in the sector reporting so far. Looking at the firms in the sector which are yet to report, the median expected growth rate is only 5.7%, far below the stunning 69.7% growth recorded by Noble (NE). However, within Energy, the Oil Service sector is expected to post much higher growth than the Integrated Oils or the E&P firms.

Among sectors which have had a significant number of firms report, Health Care is currently in the lead with 17.3% growth. While if the remaining Health Care firms were to come in at expectations, that would fade somewhat, it does not appear that the firms in the sector are a particularly biased sample. If the remaining firms surprised to the upside by an amount equal to what the median surprise for the entire S&P has reported so far, the final results for the sector would look very similar to what is being shown now.

The Consumer Staples sector is also looking very strong with a median growth rate of 14.2%. A total of 10 firms have reported in the sector, and nine have surprised to the upside, with no disappointments. However, unless those positive surprises continue at that rate the overall growth rate will fade significantly as the remaining firms report.

Conversely, the Materials sector is currently in the basement of reported growth, with a median decline of 3.9%. However, the remaining firms in the sector have the second best earnings growth profile of any sector [following Health Care]. With only four reports in for the sector, the median growth number is still very sensitive to each new report.

There does seem to be a recurring theme in the earnings reports, that is that results from domestic operations are weak, while those from overseas are extremely strong. This is in keeping with the very strong worldwide economic growth coupled with anemic U.S. growth seen in the first quarter [although domestic growth does seem to be rebounding somewhat for the second quarter, but still lags that of the rest of the world].

Weakness in the dollar has also added to growth through currency translation. Historically such earnings boosts were seen to be as of low quality. However, if the dollar stays down, or continues to fall, they are very real earnings. Share repurchase is also playing a very significant role in EPS growth as a lower denominator can raise a number just as surely as a higher numerator can.

This quarter, in addition to tracking the median year-over-year growth, we will be tracking the total net income growth for each sector. This data is included in the third table below and includes only the 36 firms that have already reported. The median implicitly equally weights the firms in a sector, while tracking total net income growth puts more weight on the larger firms.

Another reason for the discrepancy is the use of actual earnings versus earnings after non-recurring items. In addition, growth in the scorecard is based on EPS growth rather than net income growth [the total table is based on net income] thus share repurchase can boost the growth rate on the scorecard table. Calculations in the Total Earnings table utilize the former while the Scorecard showcases the latter. Therefore, look to the totals table for a clear picture of how each sector's firms are performing in aggregate.

In the sample of already reported firms, the total earnings growth is lower than the median growth rate. In the second quarter, those 122 firms posted total growth of 4.48%. If we look at the total growth expectation of those companies for the full year, it is 4.13%, which is well below the total growth expectations for the S&P 500 as a whole for 2007, which stand at 9.20%. Thus there is some chance that the total earnings growth number could rise as more firms report.

So far three sectors are showing negative growth on a total earnings basis, and only tw0 are showing double-digit positive growth. The individual sector results are far different on a total earnings as opposed to a median basis. Most notably the Consumer Staples sector, which is showing 14.5% growth on a median basis, but negative 7.3% growth on a total earnings basis.

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Source: Earnings Trends: Median EPS More Than Double Total Net Income Growth