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So far it's been a troubling U.S. earnings season.

Surprised I'd say that? You might well be -- 80% of the companies in the Standard & Poor's 500 Index ($INX) that have reported first-quarter 2011 earnings have come in above Wall Street projections. (That's on the heels of the 72% of companies in the fourth quarter of 2010 and the 76% in the third quarter.)

Many companies from all over the economy have not just beaten expectations, but blown them out of the water. Cummins (CMI, news), a maker of truck engines, reported earnings 31 cents a share above Wall Street estimates. That's 22% above Wall Street projections. Apple (AAPL, news) beat projections by $1.03 a share, or 19%. Timken (TKR, news), a maker of ball bearings and other specialty steel products, beat projections by 31%.

So what's the problem?

To see it, you have to look not just at the numbers for this quarter, but at how companies achieved those numbers. You have to study trends for things like the cost of goods sold. Let me demonstrate with some very concrete examples.

On April 27, Whirlpool (WHR, news), the world's biggest appliance maker, reported earnings of $2.17 a share. Wall Street analysts had expected just $1.16. So where did this 87% earnings surprise come from?

Not out of revenue. Revenue for the quarter climbed by just 3%. Not out of operating income. Operating income actually declined to $221 million for the quarter from $287 million in the first quarter of 2010.

How about out of the tax code?

image: Jim Jubak

Jim Jubak

The company received a net income tax benefit of $24 million in the first quarter of 2011, up from $3 million in the first quarter of 2010. The company received more in energy tax credits, renewed as part of December's lame-duck-Congress budget deal, than it had expected. For 2011, the company expects to receive from $300 million to $350 million in energy tax credits. That's up from the $300 million the company estimated in February.

Investors, though, should be asking what happens after 2011, since the energy tax credit was extended only for a year in December 2010 and is proving considerably more expensive than Congress had initially projected. (Although maybe since it's a "tax benefit" rather than "spending," it will survive the budget cuts looming for fiscal 2012.)

Whirlpool, in fact, has had a negative effective income tax rate for 2010, 2009 and 2008. In 2010, for example, the company reported a negative tax rate of 10.9% and a tax benefit of $64 million.

Nice money if you can get it. And Whirlpool certainly isn't the only company to get it. General Electric (GE, news), for example, got a tax benefit of $3.2 billion in 2010 and recorded a profit of $14.2 billion.

Tax breaks are lifting profits

But I'd argue that a boost to earnings from taxes isn't as valuable to investors as an increase in operating profit. The boost from taxes is dependent on the hard work of lobbyists and the vagaries of Washington politics -- and to the ups and downs of the business cycle. (Taxes go down when companies apply the losses from a recession to the profits made during the early part of a recovery.)

I've seen a lot of earnings reports so far this quarter that noted a lower-than-expected tax rate. Intel (INTC, news), to take another example, reported a tax rate of 27.7% in the first quarter against a projection of a 29% rate.

I really don't want to depend on those lower rates for earnings growth in the rest of 2011 and in 2012.

The other problem that I'm seeing in this quarter's earnings comes from companies reporting that they expect higher energy and raw material costs in the rest of 2011. Higher costs are nothing new this quarter -- they've been going up for a while. But what I'm seeing in this quarter's earnings reports is new admissions that companies are going to have to start passing on these costs to customers by raising prices.

And that introduces new uncertainty about how higher prices might lower sales growth.