UPDATE: Many More Companies Slashed Earnings Outlooks As Economy Cratered
January 12 2009 - 1:17PM
Dow Jones News
By Laura Mandaro
SAN FRANCISCO (Dow Jones) -- A global economy in tatters,
massive U.S. job losses and a plunge in commodity prices have
combined to spark an unusually high rate of warnings about
corporations' fourth-quarter earnings, data show.
According to Thomson Reuters, the ratio of companies in the
bellwether S&P 500 (SPX) index issuing negative outlooks on
earnings as opposed to positive ones for the last three months of
2008 reached 4.1 -- double the historical average.
For all North American stocks, the ratio is 3.7, well ahead of
the long-term average of 2.2, the provider of financial data
said.
The most recent spate of warnings have helped clip a late-2008
rebound in stock prices.
"Pre-announcement activity is starting to cause concern among
investors," said Tobias Levkovich, Citigroup's chief U.S. equity
strategist, in a note Monday.
"Bellwether companies in retailing, metals and technology are
highlighting difficulties and thus weighing on what had been some
budding investor enthusiasm," he wrote.
The S&P 500 fell 1.7% in recent action and has lost more
than 3% for the year, on top of last year's 38% collapse.
The fourth-quarter earnings season gets its unofficial start
later Monday, when Alcoa Inc. (AA) reports financial results after
the bell.
The aluminum producer's shares fell more than 7% Monday after
Deutsche Bank cuts its rating to sell, citing recently announced
production cuts and weaker aluminum prices.
The steady drumbeat of gloomier updates -- from companies
ranging from semiconductor maker Intel Corp. (INTC), low-cost
retailer Wal-Mart Stores Inc. (WMT) and oil producer Chevron Corp.
(CVX) to media conglomerate Time Warner (TWX) and drugstore chain
CVS Caremark Corp. (CVS) -- has soured Wall Street's forecasts for
the quarter.
Analysts now expect S&P 500 earnings overall dropped more
than 15% from the prior year -- a marked reversal from a sharp 46%
rebound in profits on Oct. 1, says Thomson Reuters.
With profits in the year-ago quarter hit hard by banking losses,
analysts had been expecting that easy comparisons would translate
into healthy earnings growth.
Since early October, however, a confluence of negative factors
-- more evidence of the severity of the U.S. recession and the
scope of a global downturn, mounting domestic job losses and the
toughest Christmas retail season since at least 1970 -- emerged to
dampen investors' spirits regarding corporate profits.
And oil prices have skidded even further, wiping out more energy
profits.
Profits from energy companies, which analysts polled on Oct. 1
thought would rise 22% from the year-ago quarter, are now expected
to fall 18%.
Consumer discretionary companies, a sector that includes
department-store chains and automakers, are likely to show a profit
drop of 56%. At the start of the fourth quarter, analysts forecast
a 12% gain for these companies' profits.
"Economic activity and revenue has fallen so quickly that
companies are almost in reactionary mode to recalibrate their
forecasts for 2009," said Marshall Kaplan, senior equity strategist
for Smith Barney, Citigroup's retail brokerage.
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