Profit Warnings Piling Up
by BRUCE MEYERSON
AP Business Writer
NEW YORK (AP) -- The profit warnings are piling up at a record pace on Wall Street, and while the main culprits have names like IBM and Intel, an unusual number of anguished cries are coming from the non-technology likes of Ford, Coca-Cola and Federal Express.
Barely a day has gone by in recent weeks without an onslaught of earnings announcements from U.S. companies hurt by the economic slowdown in the final months of 2000.
Happily, the flow of discouraging confessions may slow between Christmas and New Year's. But analysts caution that the distress calls may resume, or even accelerate, as companies tally their final results for the quarter.
''Don't read too much into it if it slows down next week,'' said Chuck Hill, director of research at First Call/Thomson Financial, a research firm that tracks profit forecasts by companies and Wall Street analysts.
Last year, he said, more than 40 percent of the warnings about weak fourth-quarter results came after Dec. 31, ''so we're still going to have a little more pain and suffering in the first few weeks of January.''
In all, First Call had recorded more than 430 downward revisions to fourth-quarter forecasts through Thursday, nearly twice as many as this time last year.
Obviously, the barrage of bad news has dealt a sharp blow to what little remained of investor confidence in what already was shaping up as sobering year in the stock market. The response has been a selling frenzy that could send Wall Street to its worst year since the early 1970s.
As always, technology companies have played a prominent role in reducing their profit and revenue forecasts. And with the severe slowdown in Web-related business activity, the revisions have been especially dramatic this quarter.
Investors have grown so skittish that they're even punishing technology companies that meet expectations. On Thursday, for example, Palm Inc. lost a third of its stock value even though the handheld computer maker reported profits in line with forecasts for its latest quarter. The stock recovered slightly in Friday's pre-holiday rebound.
''Expectations and valuations are different (with Palm) than they would be even with Intel, Motorola and Sun Microsystems. These older stocks never reached the ridiculous valuations of Internet stocks,'' said Richard A. Dickson, a market analyst at Scott & Stringfellow Inc. in Richmond, Va.
By contrast, he said, many non-technology companies that have issued warnings have held up well because they are in sectors that were beaten down even before technology stocks began to struggle.
''The interesting thing is how many of those stocks have not gone down on those earnings disappointments, '' said Dickson, pointing to companies such as BankAmerica and Caterpillar. ''Right now I think you're seeing the fruits of the pain and suffering that has been inflicted on the market outside of technology up until last March.''
Meanwhile, despite the weakening technology outlook, some analysts are more alarmed by the trouble signs showing up in just about every other industry.
''Contrary to what some people might think, we're not getting that many more warnings from the technology area,'' said Chuck Hill, director of research at First Call. Technology companies have accounted for about 18 percent of the profit warnings, up from about 14 percent last year, he said.
''In past quarters, there was no area that jumped out at you. It was mostly company-specific. You now have clusters of industries or sectors where the reason for the warnings is the slowing economy and higher energy costs,''
The damage has been especially severe at large companies. Among the 500 major companies that make up the Standard & Poor's 500-stock index, there have been more than 120 fourth-quarter warnings, already nearly tripling the 46 that First Call recorded for the final months of 1999.
As a result, the combined fourth-quarter profits of the S&P 500 are now expected to show a gain of less than 6 percent from the final three months of 1999, down from the 15.6 percent gain expected when the quarter began.
Worse, while most analysts still don't expect the slowdown to bring on a recession -- officially defined as an economy that shrinks two straight quarters -- there's now talk of a potential ''earnings recession'' next year in which profits would decline two quarters in a row.
The last time earnings declined even a single quarter was during the global financial crisis in late 1998.
''But that was an outside problem -- this one is a U.S. economic problem,'' said Hill. ''This (slowdown) is much broader in its impact on different sectors and will be much longer-lasting, so I think the odds are we will have a profits recession.''
Best Regards, J.T. |
