"GM strike may slice 1.0 percent off S&P500 profits"
By Huw Jones
NEW YORK, June 30 (Reuters) - The cost of General Motors Corp.'s (GM -
news) ongoing strike will shave a full percentage point off aggregate
earnings for the Standard and Poor's 500 company index in the second
quarter, analysts said Tuesday.
First Call, a company that compiles earnings outlooks, has forecast
that S&P500 earnings in the second quarter will grow 3.5 percent over
the same quarter last year.
But this has not taken into account the trimmed earnings-per-share
forecasts for General Motors issued by four analysts so far, said
Chuck Hill, First Call's director of research.
''The 3.5 percent S&P500 earnings forecast becomes 2.5 percent'' if
the latest earnings forecasts for GM are taken into account,'' Hill
said.
The consensus of the four brokers who have cut their second-quarter
earnings outlook for GM is 84 cents per share, Hill said, compared
with First Call's current forecast of $2.20.
The four cut their estimates before GM announced Tuesday that the
strike may cost $1.18 billion after-tax in the second quarter.
The EPS cut by the four represents a $950 million reduction in GM's
profits, which is still less than GM's own $1.18 billion estimate.
The latest to cut was Merrill Lynch & Co., which lowered its
second-quarter earnings forecast to 65 cents per share from $2.25, and
its fiscal year estimate to $6.30 from $7.60.
The impact of the strike will ripple, analysts said.
Auto parts maker Lear Corp. (LEA - news) said Tuesday its
second-quarter earnings will be cut by 14 cents per share by the
impact of work stoppages at GM.
The strike, which began June 5 against the nation's largest auto
maker, has idled more than 162,700 North American workers so far.
Aggregate S&P500 earnings in the second quarter had been expected to
be around $90 billion, based on a growth rate of 3.5 percent.
The strike's impact on General Motors also prompted earnings tracking
company I/B/E/S International to trim its S&P500 second-quarter growth
forecast to 1.5 percent from 2.6 percent last week.
When the usual rate of earnings surprises are included, profits are
expected to grow about 2.0 percent, I/B/E/S said.
I/B/E/S equities strategist Joseph Abbott estimated that the strike
will slice at least $900 million off S&P500 aggregate profits.
''If this strike drags on, you could see S&P500 earnings growth easily
go into negative territory in the third quarter,'' Abbott said.
And just as Wall Street breathes a sigh of relief after an
end-of-quarter buying spree, investors could be in for more bad news
on profits before second-quarter earnings start to roll in, analysts
said.
''The meter is still running on early warnings,'' Hill said. ''Next
week will probably be one of the biggest because you make warnings
right up until you report.''
First Call said there have been 426 pre-announcements so far ahead of
the second quarter, with 286, or 67 percent, negative, the highest
percentage since it began collecting such data in early 1995.
About 30 percent of the negative pre-announcements, up from the usual
25 percent, come from tech companies, seen most vulnerable to Asia's
recession.
Despite the heavier than usual number of warnings, the S&P500 index
closed Monday at its third record high in a week.
Earnings estimates have been too high because the strong dollar and
Asian weakness have been hammering prices of oil, paper,
semiconductors, and other commodities, said broker PaineWebber.
It cut its earnings estimate for the S&P500 from 5.6 percent to
between 2.0 percent and 5.0 percent.
Weak commodity prices, however, have cut costs for some companies and
put more money into consumers' pockets as gasoline prices dip, and
this will create some earnings surprises, PaineWebber said.
''Look for a schizoid pattern in second-quarter profits,'' PaineWebber
said in a report. ''After the earnings angst of recent weeks,
investors should be relieved by the earnings reports that flash on
their screens in July.''
PaineWebber said earnings estimates were rising in sectors such as
newspapers, retailing, software and drugs, and falling in household
non-durables, chemicals, metals, paper, semiconductors, energy
producers, energy service, hospital supply, and railroads.
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