What will the 2nd quarter bring?Pivotal earnings season begins
Outlooks become more important than results
By Barbara C. Costanza, CBS.MarketWatch.com
Last Update: 3:00 AM ET Apr 13, 2001
LOS ANGELES (CBS.MW) - With the prospect for a healthy earnings season all but vanished, attention over the next few weeks will be focused on expectations for the second quarter and beyond.
Earnings for the S&P 500 index companies are expected to be down for at least the first three quarters of 2001, compared with the same periods last year, with a total decline in earnings of 0.7 percent forecast for the year, according to research from First Call Corp.
But the most important thing to watch in the next few weeks will be the number of warnings that companies give about the second quarter and the rest of the year, after pre-announcements hit new highs in the last few months as the overall economy slumped.
"We are obviously on a record setting pace with no signs of letting up anytime soon," said Chuck Hill, research director at First Call.
Eli Lilly (LLY: news, msgs, alerts) kicks the week off with earnings on Monday, followed by Intel Corp. (INTC: news, msgs, alerts) , Texas Instruments (TXN: news, msgs, alerts) and AOL Time Warner (AOL: news, msgs, alerts) on Tuesday.
Advanced Micro Devices (AMD: news, msgs, alerts) and Apple Computer (AAPL: news, msgs, alerts) highlight Wednesday activity, then Microsoft Corp. (MSFT: news, msgs, alerts) , Sun Microsystems (SUNW: news, msgs, alerts) and EMC Corp. (EMC: news, msgs, alerts) weigh in on Thursday.
Analysts currently expect first-quarter earnings to drop 8.6 percent, while second-quarter expectations are for a loss of 7 percent.
The third quarter looks to be an improvement, with 1 percent earnings growth. But the fourth quarter is where all the hopes are, with forecasts for 12.1 percent growth, Hill said.
Pre-announcement scorecard
Hill said there is not yet any sign of a slowing in negative pre-announcements.
Fiscal 2001 first-quarter pre-announcements hit a record of 1,183, up from the previous record in the fourth-quarter of 1,147.
Of those first-quarter pre-announcements, 820 were negative, up from 610 in the fourth quarter of 2000. Companies that said they are on target to meet expectations totaled 192, compared with 315 in the fourth quarter. Positive pre-announcements totaled 171, compared with 222 in the last quarter.
And as many had assumed, warnings from technology companies have increased. The overall technology sector has seen an estimated 285 pre-announcements, of which 232 were warnings.
The good, the bad and the advice
Earnings for the S&P 500 technology sector are expected to decline 37 percent in the first quarter, 36 percent in the second quarter and 25 percent in the third quarter, compared to their year-earlier periods. Fourth-quarter earnings are expected to fall 1.1 percent.
While still negative, the fourth-quarter expectation would be a turn around compared with the first three quarters. That could mean the bottom for the technology sector would be the third quarter. For the year, analysts expect a decline of 25 percent in earnings for technology companies.
So far, the consumer cyclical group, such as autos and home furnishing companies, is holding up the best. Although not positive, there has been a drop in the amount of earnings warnings for the sector. But Hill said the next couple of weeks should determine if consumer cyclicals are truly turning around.
So what investors might want to watch for is whether the pre-announcement and revision pattern for technology begins to show a meaningful slowing and whether the pattern for the consumer cyclical sector reverts back to a negative one, Hill said.
Once companies finish reporting first-quarter earnings, a clearer picture will start to emerge about what will happen in the third and fourth quarters. According to Hill, the market has already written off that the first and second quarters as "lousy" quarters. And Hill believes the market is starting to write off any meaningful recovery in the third quarter.
Barbara C. Costanza is earnings editor of CBS.MarketWatch.com, based in Los Angeles. |
