By George Leong, B.Comm.

What's all of this fuss about earnings helping to drive up the stock market?

The first-quarter earnings season has been OK, but not great. Maybe the market is fine with average results and pleased there have not been major surprises to the downside.

First-quarter gross domestic product (GDP) expanded at an annualized 2.5%?pretty good considering GDP rose a muted 0.4% in the fourth quarter, but it was still short of the Briefing.com estimate of 2.8% for the first quarter. (The global economy is also showing some fragility.)

And there are whispers that GDP growth will slow in the second quarter.

In my view, the lack of strong and sustained GDP growth suggests corporate America is also struggling to increase business volume.

The evidence is in the first-quarter earnings season.

Let's take a look:

So far as of Friday, 235 of the S&P 500 companies have reported this earnings season; about 68% have managed to beat Thomson Financial earnings-per-share (EPS) consensus estimates?in line with the recent quarters. That's the good news.

The problem that I see is on the revenue side, which makes some sense, given the GDP.

Of the 102 S&P 500 companies that had reported their first-quarter 2013 earnings as of April 19, a mere 45% of these have beaten revenue estimates, according to FactSet. The 45% figure is well below the 64% that beat in the fourth-quarter earnings season and the 52% average of the prior four quarters. (Source: "Earnings Insight," FactSet, April 19, 2013.)

The lack of revenue growth in the first-quarter earnings season is problematic, and it suggests corporate America is not doing as well as the stock market may be indicating.

As I scan the newswires each morning, I notice the lack of solid revenue growth.

Starbucks Corporation (NASDAQ/SBUX) was in line with earnings in its first-quarter earnings season, but it fell short on the revenue side.

The Procter & Gamble Company (NYSE/PG) beat on earnings, but did so via cost-cutting. Revenues came in lighter than expected.

In the fast food segment, Burger King Worldwide, Inc. (NYSE/BKW) saw revenues in the first quarter plummet 42.5% year-over-year.

Amazon.com, Inc. (NASDAQ/AMZN) beat on earnings and was only in line on revenues.

Again, my concern is the lack of revenue growth.

America will be healthy when companies grow revenues to drive earnings, rather than cutting costs to drive earnings.

I still don't see this happening as reflected by the weak 45% reading I already mentioned.

Given this, I suggest you be careful when looking at the economy, as the lack of revenue growth will likely hurt GDP going forward, and this would have an impact on the broader market.

Re-published with permission.

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