Transcripts

The 1st Quarter May Bring Mixed Messages

PAUL KANGAS: Dow stock Alcoa is expected to report first quarter earnings tomorrow and that traditionally marks the start of earnings season. This earnings season, forecasts call for the end of a 14 quarter streak of double digit earnings growth. Scott Gurvey explains.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street has been preparing for a disappointing first quarter since the start of 2007. Analysts surveyed by Thomson Financial were looking for an 8.7 percent increase in year to year profits when the quarter began. That expectation is now for a 3.3 percent increase compared to a 10.6 percent gain in the fourth quarter of last year. Tough year to year comparisons account for much of the apparent slowdown. The energy sector is expected to be especially hard hit because of lower oil prices compared to this time last year. The consumer discretionary sector is expected to post an actual earnings decline compared to the first quarter of 2006. But Standard & Poor's, which uses its own methodology to forecast earnings, sees first quarter profits rising 5 percent compared to the nearly 9 percent gain in the fourth quarter of last year. S&P's chief investment strategist Sam Stovall, does not expect earnings season to trigger a major market downturn.

SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: It seems as if that Wall Street is very much aware that first quarter results are likely to be half of what we saw in the fourth quarter of 2006 and that we are definitely entering into a period of market deceleration. But since everybody knows that, I guess it's not going to be much of a surprise.

GURVEY: Still, analysts warn it could take only one unexpectedly bad report to spook the markets. Thomson Financial's VP of research, Robert Keiser, says companies have been working to prevent that by intentionally lowering their expectations.

ROBERT KEISER, VP OF RESEARCH, THOMSON FINANCIAL: Historically, the ratio of negative to positive preannouncements runs about two to one and it has been an elevated 3.2 for the first quarter of 2007. And what we are seeing is not so much the negative preannouncements are growing, but negative preannouncements are holding the same. But there's really a lack of positive preannouncements.

GURVEY: Many analysts believe the first quarter will be the low point of the year. But most expect to see earnings growth in at single digits throughout. Most expect to see returns to double digit growth in 2008. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.