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Investors demand companies show higher sales

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NEW YORK (AP) -- It has been clear for some time that business is getting better. The coming week will give investors an idea of how much.

As earnings reports start to flow in for the July-September quarter, investors are likely to be more exacting than they were a few months ago, when they were pleased by companies' better-than-expected profits for the second quarter. Those results largely came from heavy cost-cutting. This time, investors want signs that companies are finding ways to bring in more money.

"Cost-cutting is OK for a little while and to some degree it's good for companies to get in shape. Eventually we need to see the earnings coming from business improving," said Jason Pride, director of research at Haverford Investments in Radnor, Pa.

Analysts note that even modest increases in revenue could translate to big profit increases because companies have slashed costs. The extra revenue would flow right into the profit column.

Alcoa Inc., which reported its results last week, might be an example of what's to come. The aluminum maker had a surprise profit that was due in part to cost-cutting, but also in better sales to automakers.

Michael Sheldon, chief market strategist at RDM Financial, said an improvement in earnings could reassure investors that the market's seven-month rally has been justified. He said strong numbers could give stocks new fuel. The Standard & Poor's 500 index is up 58.4 percent since hitting a 12-year low in March.

"I think there's optimism that the U.S. economy is going to recover and that earnings are likely to come in better than expected once again," Sheldon said.

The companies reporting this week are some of the biggest in America and often shape investors' opinions of how entire industries are faring.

General Electric Co., Intel Corp., JPMorgan Chase & Co. and Southwest Airlines Co. are household names and the range of their businesses could give the market the best data in months about the health of the economy.

A look at some of those those four companies:

General Electric Co.

--Why it's important: GE is considered a benchmark for how the economy is doing, and for good reason. The Fairfield, Conn.-based conglomerate's big industrial divisions are major players in areas like energy, health care, transportation, and consumer products. GE makes wind turbines and oil field equipment. Its locomotives and jet engines power trains and planes. Doctors use GE health care equipment like ultrasound and MRI machines. When homeowners remodel their kitchens, they often buy GE dishwashers and refrigerators. And GE's huge finance division makes loans ranging from credit cards to shopping centers.

--When it will report: Friday, Oct. 16.

--What experts say: On average, analysts polled by Thomson Reuters expect GE to post a profit of 20 cents per share on revenue of $40 billion. In the same quarter of last year, the company reported profits of 45 cents per share on revenue of $47.2 billion.

-- You'll know the economy is improving if: GE starts making more money selling new equipment, not just fixing up jet engines, turbines and locomotives customers already own. GE has made a tidy profit on service work, money that has helped it weather the brutal recession. But analysts are also looking for new orders to see if GE's industrial businesses are growing. That could mean that industrial production is getting better.

-- You'll know the economy is not improving if: Losses continue to dog GE's credit card and commercial real estate business. Consumers are under strain because of unemployment and falling house prices, making them more likely to default on credit cards backed by GE. Commercial real estate is also heading for a crisis, bad news for GE Capital's big holdings in office buildings, apartments, retail space and its portfolio of commercial real estate loans

-- The quote: "There are reasons to believe that this recovery could look different from ones in the past," GE's CEO Jeffrey Immelt said on a recent trip to Asia. "There's not a lot of confidence that it's going to be great."

JPMorgan Chase & Co.

-- Why it's important: JPMorgan Chase's results provide insight into how consumer and investment banking are faring, therefore presenting a picture of the entire financial services industry.

Investment banking operations have rebounded along with financial market throughout the year, but retail banking remains sluggish as loan losses continue to pile up. Still, throughout the past year's turmoil, the New York-based bank has been considered among the strongest in the country.

-- When it will report: Wednesday, Oct. 14

-- What the experts say: On average, analysts polled by Thomson Reuters expect JPMorgan to post a profit of 49 cents per share on revenue of $24.81 billion, reflecting the acquisition of Washington Mutual Inc. a year ago. In the same quarter of last year, the company reported profits of 11 cents per share on revenue of $14.74 billion.

-- You'll know the economy is improving if: The increase in delinquency and default rates among mortgages, credit cards and commercial real estate loans start to ease or if there is an outright decline in those losses.

-- You'll know the economy is not improving if: Rising loan losses and delinquencies don't show any signs of moderating. Also, while investment banking revenue is expected to slow from the second quarter, a severe drop in profit in that division might indicate a slow and uneven economic rebound.

-- The quote: "They are probably the premier bank, if not in the world, then in the U.S.," said John Jay, senior analyst at financial consulting firm Aite Group. "If there's strength within the strongest constituent within the group of financial institutions, it carries much, much more weight than No. 12 guy on the ladder."