Keep an Eye on the Top Line

As earnings season continues to work its way through the markets, I've noticed some similarities across a diverse group of businesses. Consider the following sample set:

Advance Auto Parts (AAP) reported results and beat analysts' estimates by $0.10 but missed revenue estimates Costco (COST) reported July same-sales stores that missed estimates McDonald's (MCD) reported very modest global sales growth in July, up 0.7%. Standard Motor Products (SMP) reported an 18.6% increase in EPS, but revenue missed analysts' estimates

It's not hard to see the trend: Profits are growing, but sales are struggling. To be sure, the current yardsticks are based on analyst estimates, which may not necessarily be realistic. Also, some companies seem to been bucking the trend. Stein Mart (SMRT) continues to report very strong same-store sales growth, and Tyson Foods (TSN) reported strong numbers. But ever since the U.S. started climbing its way out of the recession, one of the first things many companies did was cut costs. So it became easier to report profitability growth, even if sales weren't keeping up....234 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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