Investors to Companies: Show Us Higher Sales

It has been clear for some time that business is getting better. The coming week will give investors an idea of how much.

FILE - In this April 14, 2008 file photo, a sign is shown in front of Intel Corp. headquarters in Santa Clara, Calif. (AP Photo/Paul Sakuma, file)

(AP)

As earnings reports start to flow in for the July-September quarter, investors are likely to be more exacting than they were a few months ago, when they were pleased by companies' better-than-expected profits for the second quarter. Those results largely came from heavy cost-cutting. This time, investors want signs that companies are finding ways to bring in more money.

"Cost-cutting is OK for a little while and to some degree it's good for companies to get in shape. Eventually we need to see the earnings coming from business improving," said Jason Pride, director of research at Haverford Investments in Radnor, Pa.

Analysts note that even modest increases in revenue could translate to big profit increases because companies have slashed costs. The extra revenue would flow right into the profit column.

Alcoa Inc., which reported its results last week, might be an example of what's to come. The aluminum maker had a surprise profit that was due in part to cost-cutting, but also in better sales to automakers.

Michael Sheldon, chief market strategist at RDM Financial, said an improvement in earnings could reassure investors that the market's seven-month rally has been justified. He said strong numbers could give stocks new fuel. The Standard & Poor's 500 index is up 58.4 percent since hitting a 12-year low in March.

"I think there's optimism that the U.S. economy is going to recover and that earnings are likely to come in better than expected once again," Sheldon said.

The companies reporting this week are some of the biggest in America and often shape investors' opinions of how entire industries are faring. General Electric Co., Intel Corp., JPMorgan Chase & Co. and Southwest Airlines Co. are household names and the range of their businesses could give the market the best data in months about the health of the economy.

A look at those four companies:

General Electric Co.

—Why it's important: GE is considered a benchmark for how the economy is doing, and for good reason. The conglomerate's big industrial divisions are major players in areas like energy, health care, transportation, and consumer products. GE makes wind turbines and oil field equipment. Its locomotives and jet engines power trains and planes. Doctors use GE healthcare equipment like ultrasound and MRI machines. When homeowners remodel their kitchens, they often buy GE dishwashers and refrigerators. And GE's huge finance division makes loans ranging from credit cards to shopping centers.