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Third-quarter estimates: So far, 79% of companies have beaten them, firm says

October 20, 2009 |  2:06 pm

The stock market rallied in recent weeks on the expectation that corporate earnings would top analyst estimates. So far, they’re doing more than that.

Led by the likes of Caterpillar Inc. and Apple Inc., 79% of companies have beaten analysts’ third-quarter estimates -- a record level if it holds up, according to research firm Thomson Reuters.

Historically, slightly more than three in five companies have beaten estimates, according to Thomson Reuters, which has tracked the data since 1994. The record -- set in the first quarter of 2004 and equaled in the second quarter of this year -- is 73%.

The 79% number is likely to decline as more companies report results, said John Butters, director of U.S. earnings research at Thomson Reuters. Only 95 companies in the Standard & Poor’s 500 index have reported so far.

Another measure of earnings is also encouraging. Aggregate earnings thus far have come in 19% above estimates, another potential record if its holds above the high-water mark of 13.6% notched in the second quarter.

Of course, any discussion of third-quarter earnings is extremely relative.

Third-quarter operating earnings overall still are expected to fall sharply -- down 21.5% compared with a year earlier, according to Thomson Reuters. That would be a record nine straight quarters of declining year-over-year profits. Overall growth is projected to resume in the fourth quarter.

And a major reason for the earnings surprises at companies such as Caterpillar and Yahoo Inc., which reported better-than-expected results after the close of the market today, is substantial layoffs.

Still, improving earnings are critical if the stock market is going to sustain its upward climb, and the comments emerging from some companies are encouraging.

Heavy-equipment maker Caterpillar bulldozed estimates this morning by reporting third-quarter earnings of 64 cents a share. Analysts had expected 5 cents. The company's stock gained $1.76 to $59.61, its highest close in more than a year.

The Peoria, Ill.-based company also bullishly pronounced that it saw “encouraging signs that indicate a recovery may be underway.”

-- Walter Hamilton