I found this article on AOL's board, "Big Lou's Trading Bar". It's an article off Reuters by Huw Jones. Here's the entire article.
>>>Subject: Q2 Profits
Date: Sat, Jun 6, 1998 20:05 EDT
From: BEARMOVE
Message-id: <1998060700051200.UAA01527@ladder01.news.aol.com>
Asian Crisis Will Restrain Q2 Profits
By Huw Jones
Reuters
NEW YORK (June 5) - Corporate earnings in the second quarter are expected to be among the weakest in recent years as Asia's financial turmoil takes its toll on the bottom line.
Profits are being squeezed by weaker sales in Asia, the strong dollar, and lower commodity prices, Allen Sinai, chief global economist at Primark Decision Economics, said.
''We're getting a squeeze here, putting earnings growth on a lower trajectory,'' he added.
Earnings of companies making metals and producing oil should be hardest hit outside the technology sector, as Asia's woes dampen commodity prices and oil prices languish.
Primark estimates that at least some of the earnings of 146 companies, or 5 percent to 8 percent of total earnings for the S&P500, have exposure to Asia.
''Asia hurts, but it isn't the end. We were due for a slowdown. It it wasn't Asia, it would have been the Federal Reserve. It just needed a source,'' Sinai said.
Wall Street expects second-quarter earnings of the nation's biggest companies in the Standard and Poor's 500 index to grow by 5.3 percent over the year-earlier quarter. That would be the second-lowest increase in two years. Only the 3.8 percent increase in this year's first-quarter -- itself the lowest since the fourth quarter of 1991 -- was lower.
Wall Street analysts generally expect profits to rebound sharply in the second half.
Sinai, among those who disagree with the consensus view, warns that the effect of Asia's economic troubles could thwart the recovery.
''With Asia, there is real risk to the view that profits will come up in ... the second half,'' Sinai said.
Some companies already have started issuing statements that their second-quarter earnings will be higher or lower than Wall Street analysts expect.
Such warnings are a routine way for companies to avoid shocking the market and causing sharp increases or declines in their stock prices when they believe that analysts are off the mark in their earnings projections.
Chuck Hill, director of research at First Call Corp., which tracks analysts' estimates, said the percentage of negative announcements is running higher than it was at this stage in the first quarter.
''It does raise an eyebrow,'' Hill said.
Jitters over second-quarter earnings have already contributed to a modest pullback in stocks but stock valuations are still near record highs.
''The stock market correction that we're seeing now is a process of revaluing second quarter earnings,'' said Christine Callies, chief investment strategist at Credit Suisse First Boston.
First Call expects earnings of oil majors to fall 22 percent, but those of companies servicing them, the drillers and equipment makers, to rise 51 percent and 22 percent respectively.
''The majors are in the tank because of low oil prices, but they are not low enough to cut back exploration,'' Hill said.
But there are already signs that oil producing countries, led by Saudi Arabia, are taking steps to cut exports to boost flagging prices.
''This is the last quarter that oil is going to impact the year-over-year earnings growth for the broader aggregates in the S&P500,'' said Joseph Abbott, an analyst at earnings tracking firm I/B/E/S International.
Copper and steel earnings are set to fall 78 percent and 1 percent respectively, but aluminum earnings are expected to rise 8 percent, First Call said. Chemical sector earnings are expected to fall 8 percent.
Paper producer profits are set to rise 97 percent, reflecting a bounce from very low levels last year.
On the bright side, retailers, financial services companies, homebuilders and pharmaceuticals are expected to repeat or even improve on their first-quarter performance as a robust economy underpins solid consumer demand, analysts said.
''Right now we are in consumer heaven,'' Sinai said. ''Even if there is a stock market correction, Americans earn money and they spend money, and retail is one place they spend money quite regularly.''
I/B/E/S forecasts that earnings in the retail sector wil be up 17 percent, with apparel sellers particularly strong.
Profits in the homebuilding sector are expected to rise 20 percent in the second quarter, while earnings in the pharmaceutical industry will also remain solid, up 15 percent, First Call said.
Financials will also continue to do well, with brokers up 14 percent, and banks up 18 percent, First Call said, as the Federal Reserve hand is held on interest rates while Asia is still mired in financial difficulties.
Barbara |
