Big Oil Expects Big Profits as Earnings Season Looms

ByABC News
April 10, 2006, 4:55 PM

April 11, 2006 — -- Four times a year, publicly traded companies are required to tell investors how things are going. It's known as earnings season, a great time to dig into the health of corporate America -- and it's upon us.

During the next five weeks, nearly every company in the broader S&P 500 tell Wall Street how much they sold in the January to March time period, and how much of those sales translated into profits during the quarter.

"I expect the story to be one of very good earnings," said Michael Thompson, director of research at Thomson Financial. "Things really get underway next week (week of April 17), but all signs now are pointing to a first quarter that is better than the historical average of 7 percent earnings growth."

Thomson Financial, a firm which tracks analyst expectations for corporate profits, reports that as of Monday, experts were expecting a 10.4 percent increase in earnings for the first three months of 2006.

The biggest chunk of that growth will come from the energy sector, where companies like ExxonMobil and Chevron are expected to push three-month results up by more than 40 percent, according to the latest analyst estimates.

"If you took out energy stocks, results would be much different," said Thompson. "They'd settle around 6.5 percent growth."

If things shake out as expected, the first quarter of 2006 will mark the 11th straight quarter of double-digit profit growth. That is a result that has only been bettered once before -- the bull market of the early Clinton years (Q4 '92 to Q4 '95).

Even with the overall positive picture, there is a dark spot on Wall Street.

Thomson's numbers indicate that the materials sector -- which includes companies like U.S. Steel, DuPont and Dow Chemical -- is likely to see profits shrink by 4 percent. This sector is feeling the brunt of price increases for "feedstocks" that fuel their massive factories. Prices for iron ore, natural gas and aluminum have risen significantly in the past year, forcing their profit margins into the red.