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BOSTON (TheStreet) -- Earnings from U.S. companies are expected to show the slowest rate of growth since the end of the recession, and management will have no shortage of excuses.

They will be: "a still-weak U.S. economic recovery, the Japanese supply disruption, tornadoes, floods and generally severe weather in the U.S., a surge in commodity costs, and a stubbornly high unemployment rate," Sam Stovall, Standard & Poor's chief investment strategist, outlined in a research note.

But as those headwinds are likely to be transitory, Stovall says, earnings will reflect a gradual return to "normal" conditions. Even if those hurdles are temporary, earnings per share for all companies in the

S&P 500

are forecast by analysts to rise at the slowest pace since the third quarter of 2009.

Goldman Sachs

analysts project that operating EPS for S&P 500 companies will total $23.75 in the second quarter, 14% higher than a year earlier, but slowing from 17% in the first quarter.

The real story, Goldman analysts write, is that sales are accelerating while EPS growth is decelerating. Sales are expected to rise 13%, accelerating from 11% in the first quarter and 6% to 8% in the previous three quarters.


analysts, meanwhile, say U.S. businesses are healthy, underpinning gains in the stock market.

"High profitability and robust earnings growth have helped push equity markets higher and also suggest that business spending is likely to aid the ongoing economic recovery," the UBS analysts wrote in a research note. "These trends are likely to be re-emphasized in the upcoming earnings season despite the economic soft patch and worries about Greece, which have dominated sentiment in recent weeks."

Not all sectors will benefit equally. Materials and energy are expected to lead in profit growth, thanks to surges in prices for commodities like gold and crude oil. On the other hand, health care and utilities will show razor-thin increases in EPS growth.

The following pages detail what's expected for each of the S&P 500's 10 industries this earnings season, ranked by expected EPS growth.


S&P's Capital IQ unit says analysts expect that the materials sector will show the greatest jump in earnings per share growth with a 60.6% year-over-year increase. As a group, materials stocks in the S&P 500 are up only 5.6% this year. That trails gains by health care and energy, among others, as well as the 6.7% rise of the broader market.

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While materials should have the highest increase, S&P analyst Stewart Glickman is expecting a mixed bag in terms of actual results. He believes that specialty metals and gold will beat consensus and will offer upbeat guidance.

"In most other those areas, however, the tone will more likely be negative, in our view, even in cases where we think second-quarter numbers will match consensus, such as steel and base metals," Glickman writes.

Quantitative analysts at Citigroup developed an earnings surprise scorecard, a model that searches for candidates that could experience a positive earnings surprise. In the materials sector, Citi analysts expect that


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Dow Chemical

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(DD) - Get DuPont de Nemours, Inc. Report



(HUN) - Get Huntsman Corporation Report

will report positive earnings surprises.


Capital IQ says that analysts expect that the energy sector will show a 38.1% year-over-year increase in earnings per share growth. As a group, energy stocks in the S&P 500 are up 13.3% this year, easily beating the broader market and second only to a 14% gain in health-care stocks.

S&P's Glickman says that a stronger U.S. dollar is the biggest potential headwind for the energy group, although he regards that dollar as a secondary factor to global demand and supply, which is what ultimately sets crude prices.

"Spare capacity remains thin, and global demand, led largely by secular growth in non-OECD countries, still looks robust to us, even if we're not seeing growth locally," Glickman writes, referring to countries outside the Organization for Economic Cooperation and Development.

Goldman Sachs analysts note that energy earnings estimates have seen a total upward revision of 5% since April, reflecting higher crude prices. Integrated oil and gas firms, like

Exxon Mobil

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(CVX) - Get Chevron Corporation Report

contributed most to those revisions, Goldman writes.

UBS analysts say that it is a tough quarter to call given the scale of moves in the price of oil. "The recent fall in oil has been pretty modest and Q2 oil prices have averaged higher than Q1," the analysts write. UBS says it prefers energy service names, while analyst Bill Featherston has reiterated his preference for Chevron.

In the energy sector, Citi analysts expect that

Baker Hughes


will post a positive earnings surprise when the company reports financial results for the second quarter.

UBS analysts expect several energy companies to fall short of estimates, including

NuStar Energy

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Niska Gas Storage Partners




Capital IQ says that analysts expect that the financial sector will show a 17.5% year-over-year increase in EPS growth. Although this puts the sector as the third best in terms of projected earnings growth, financial stocks in the S&P 500 are the worst performing group of all 10 sectors, falling 1.8% this year.

Bank of America

has forced several analysts to revise their estimates lower after the bank said an $8.5 billion settlement over mortgage putbacks would result in a second-quarter loss of 88 cents to 93 cents. However, S&P Indices projects the potential Bank of America settlement charge will be excluded from operating results and included in "As Reported" earnings.

Even so, S&P analyst Erik Oja expects the second quarter to be worse than the first quarter for U.S. banks as loan growth was negative impacted by auto and tech supply disruptions after the Japanese earthquake and tsunami in March.

"Earnings quality has been relatively poor, with about 25% of Q1 EPS driven by reserve releases," Oja writes. "We see further reserve releases in Q2, diminishing in second half of 2011."

Goldman analysts note that negative EPS revisions have been the greatest in the financials sector, with estimates cut by 24% in the past two months alone.

UBS analysts, meanwhile, note the tough recent fundamentals for financial companies. "

It's hard to know if the quarter can provide a positive story to the sector, despite recent significant underperformance given weak trading results and loan growth," the analysts write.

In the financial sector, Citi analysts expect that


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Blackstone Group

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Janus Capital Group


, and several real estate investment trusts like

Digital Realty REIT

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will post positive earnings surprises.

On the other hand, UBS analysts say

Goldman Sachs

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is likely to report a quarterly miss with its second-quarter financial report.

Information Technology

Capital IQ says that analysts expect that the technology sector will show an 11.7% year-over-year increase in the quarter. As a group, technology stocks in the S&P 500 are up only 5.5% this year.

Earnings from tech companies should be "decent" with some pockets of weakness and very conservative guidance for the third quarter, says S&P analyst Scott Kessler.

"We think companies that could be most vulnerable have notable exposure to Europe and the consumer PC segment," Kessler writes. "We expect better-positioned companies to seize upon opportunities by allocating capital to strategic M&A, stock buybacks, and dividend payouts."

The tech sector is full of candidates for positive earnings surprises, according to Citi analysts. Among the 17 companies that could surprise to the upside are


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(QCOM) - Get Qualcomm Inc Report



(IBM) - Get International Business Machines Corporation Report


Cisco Systems

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UBS analysts say the tech sector looks set to benefit from the good momentum which emerged in the first quarter. "We favor companies with good business exposure and relatively less reliant on the consumer or governments," the analysts write.

UBS analysts have high conviction that several tech companies will beat earnings expectations, including Apple,




F5 Networks

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, among others. On the downside, they expect

Juniper Networks

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to fall short of estimates.


Capital IQ says analysts expect that the industrials sector will show a 10.8% year-over-year increase. As a group, industrials in the S&P 500 have climbed nearly 10% this year, beating the broader market.

Signs of economic deceleration have made the outlook for industrial companies more uncertain, including drops in new orders and production. But don't be surprised if second-quarter results surprise on the upside, says S&P analyst Mike Jaffe.

"We base that view on our belief that trends will turn out to be somewhat more favorable than those being assumed as a result of economic worries," Jaffe writes, adding that he expects relatively widespread strength in the sector.

UBS analysts argue that the economic soft patch is a risk for some early cycle industrial companies, like


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. Those with emerging market and commodity exposure should do well, they say, and they are positive on companies like

General Electric

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In the industrial sector, Citi analysts expect that GE,


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, and

Northrop Grumman

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, among others, will surprise to the upside.

Consumer Discretionary

Capital IQ says that the consumer discretionary sector will show a 10.7% year-over-year increase, according to analysts' estimates. As a group, consumer discretionary stocks in the S&P 500 have outperformed the market despite worries over the health of the consumer given the stubbornly high unemployment rate. Those stocks are up 11.3% this year, best only by health care and energy stocks.

S&P analyst Tuna Amobi writes that second-quarter earnings for the cyclical stocks should see persisting cost pressures for key inputs like steel as well as foods and other commodities and relatively elevated gasoline prices factored into second-quarter earnings.

UBS advises investors to take a cautious approach to companies exposed to the consumer more broadly, "given the backdrop of a higher oil price and level of unemployment."

In the consumer discretionary sector, Citi analysts expect that

Wynn Resorts

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, and


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, among others, will post upside surprises in terms of EPS.

Consumer Staples

Capital IQ says analysts expect that consumer staples will see a 9.4% year-over-year increase in earnings. The sector has a similar middle-of-the-pack performance in terms of share price return, as consumer staples stocks in the S&P 500 are up 8.3%, slightly better than the broader market.

S&P analyst Thomas Graves says he believes the greatest headwind for second-quarter earnings for consumer staples will come from commodity cost pressures.

"As a result, we expect increased talk about raising prices to cover these commodity costs, although a recent downturn in key raw materials costs, such as oil, could lead to less pressure than previously assumed for beverage companies," Graves writes.

Goldman analysts say consumer staples firms raised prices during the second quarter, "which likely offset the impact from higher commodity input costs and helped to maintain margins, leading to positive EPS surprises."

On the other hand, UBS analysts have voiced some concern that the stocks have outperformed as a defensive sector of late, and that "limited pricing power along with higher input costs leaves the sector vulnerable."

In the consumer staples sector, Citi analysts expect that

Estee Lauder

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Corn Products International


will report upside surprises for the second quarter.

Health Care

Health care is one sector where estimates and share price movement are disconnected. Capital IQ says analysts expect that the health-care sector will show a weak 4.2% year-over-year increase in earnings per share. But as a group, health-care stocks have been the best performers on the S&P 500, rising 14% this year.

S&P analyst Jeffrey Loo expects mid-single digit sales growth in the health-care sector "as we look for continued robust growth within emerging markets to be partially offset by modest growth in the United States and Western Europe." He estimates that foreign currency exchange should benefit sales growth by 1% to 2%.

In the health-care sector, UBS analysts say they are positive on most companies but less positive on drug and pharma companies.

In the health-care sector, Citi analysts expect that several companies will see positive earnings surprises for the second quarter, including




Boston Scientific

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(MRK) - Get Merck & Co., Inc. Report


UnitedHealth Group

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, among others.


Capital IQ says analysts expect that the utilities sector will see a tepid 2.3% year-over-year increase in earnings per share. As a group, utilities stocks in the S&P 500 have risen 8% this year.

S&P analyst Justin McCann expects that increasing operating expenses for utility companies will be partly offset by customer growth and rate increase. However, the third quarter of this year may be more interesting for utility companies than this current reporting quarter.

"Weather is not typically a major factor in Q2 results for electric utilities, containing only 28% of a normal year's cooling degree days," McCann writes. "By contrast, Q3 contains 63% of a normal year's cooling degree days."

In the utilities sector, Citi analysts expect that


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will surprise to the upside with earnings results.


Telecom is one area where both earnings growth and share price performance have been underwhelming. Capital IQ says analysts expect that the telecom sector will show a 0.1% year-over-year decrease in earnings per share, the only sector that is on target to report a decline. As a group, telecom stocks in the S&P 500 have reflected these weak expectations, rising only 4.7% in 2011.

S&P analyst Todd Rosenbluth expects the second quarter to be a balancing act for some telecom services companies, with quarterly growth in the broadband customer base through service bundles offsetting the continued hemorrhaging of voice customers who have fled to cable companies and wireless.

Wireless will be the place to watch, as Rosenbluth is looking for the continued adoption of smartphones and tablets supporting strong data usage. "In our view, this will help top line growth of the tower providers as well as the traditional wireless carriers, some of whom are segments of the integrated telecom carriers such as


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," Rosenbluth writes.

-- Written by Robert Holmes in Boston


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