We've seen two conflicting trends affecting the bottom line of the S&P 500 companies lately: Revenue growth has been slowing, while earnings have been increasing. According to Ed Yardeni of Yardeni Research, the S&P showed revenue growth of just 0.3 percent during the second quarter of 2012. Compared to the second quarter of 2011, revenue growth this year was a somewhat stronger 1.9 percent, but that's still the slowest pace for revenue growth since the third quarter of 2009.
But earnings have stayed solid, and are expected to continue to grow. The industry analyst estimates collected by Yardeni show a forecast of earnings for the S&P 500 rising at 5.7 percent this year. The same analysts expect earnings growth to double next year, to a level of 11.7 percent growth.
What makes up the discrepancy between weaker revenues and stronger profits? Profit margins. For the S&P 500, profit margins were at 9.3 percent in 2011, and are expected to rise, clocking in at 9.5 percent this year and a 10.1 percent in 2013.
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