Investors brace for lackluster 2Q earnings

— -- Q: Just how bad are corporate earnings supposed to be in the second quarter of 2012?

A: Investors have gotten spoiled by many quarters of strong corporate profit growth. It's looking like these good times are about to end.

Analysts currently expect companies in the Standard & Poor's 500 index to report 0.9% lower earnings in the second quarter, S&P Capital IQ says. Just three sectors, industrials, information technology and consumer staples, are expected to report profit growth in the quarter.

Seeing such lackluster growth in the second quarter is a big letdown, especially since profit growth had been on such a roll. Earnings grew 7.5% in the first quarter and 8.4% in the fourth quarter of 2011. And a year ago, in the second quarter of 2011, earnings grew by a whopping 19.1%.

Dragging down earnings for the second quarter are materials, utilities and energy, which are expected to see their profit fall 11.7%, 8.6% and 8.5%, respectively.

If there's a bright spot, it's that companies' revenue is holding up relatively well. Analysts currently expect companies to post 5.4% revenue growth during the quarter. If companies can deliver that level of revenue growth, that's roughly in line with the 6.0% top-line growth in the first quarter. But again, it's a not exactly a bonanza given that a year ago, in the second quarter a year ago, revenue grew 12.0%.

Despite the lackluster earnings growth expected in the second quarter, investors shouldn't forget stock valuations are still reasonable. If companies in the S&P 500 earn $104.91 a share this year, that means the S&P 500 currently sports a fairly reasonable P-E of 13.1 based on expected earnings.

And there's another possible kicker to the upside. With such low expectations for earnings, it wouldn't be difficult for companies to come in at least a little better. But investors will need to stay tuned to find out if companies do as poorly as expected, or if they can pull off a bit of a surprise.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz