The 2nd Quarter Earnings Season Isn't Expected To Earn Many Profits
Tuesday, July 08, 2008PAUL KANGAS: Alcoa shares tacked on as much as 6 percent in after hours trading, as the Dow component kicked off earnings season with better than expected results. While Alcoa's second quarter earnings fell 24 percent from a year ago, the higher energy cost was part of it; at $0.66 a share still beat analyst expectations by $0.02. Revenues were also lower, but better than estimates, coming in at $7.6 billion. Morningstar equity analyst Scott Burns says Alcoa's new CEO, Klaus Kleinfeld, is turning things around, despite market challenges.
SCOTT BURNS, EQUITY ANALYST, MORNINGSTAR: I think the auto -- the difficulties in the auto sector, and presumably the difficulties in the airline sector, how that reflects in the aerospace sector, could cause some major disruptions for this company going forward. Even so, I think the new leadership at Alcoa has the company steering in the right direction and they're able to deal with these costs.
KANGAS: Alcoa's profit report kicks off a flood of second quarter earnings, and Wall Street is not expecting the numbers to be good. As Suzanne Pratt reports, this earnings season will probably mark the longest stretch of profit declines for the nation's largest companies in six years.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street is bracing for dismal quarterly earnings from corporate America. Surging oil prices, the credit crunch, and a looming recession get the blame. Since January, second quarter earnings expectations for S&P 500 firms have fallen sharply, with analysts now anticipating a 13 percent decline in profits, or more.
ASHWANI KAUL, DIR. OF RESEARCH, THOMSON REUTERS: I anticipate that number to get worse as banks continue to do massive write-downs. I do see some positive numbers coming out of certain sectors. But, overall, I think it's going to be a tough quarter.
PRATT: Financial firms and auto makers are likely to lead the pullback with another disappointing quarter. Financial sector results are expected to decline nearly 70 percent. Profits for consumer discretionary stocks, which include Ford and GM, are expected to downshift 19 percent. Still, earnings season is likely to have some winners. Energy profits are expected to jump 30 percent, thanks to those higher oil prices. Analysts predict technology and healthcare firms will also post solid profit growth. Thomson Reuters analyst Ashwani Kaul is impressed by the tech sector's resilience.
KAUL: If you look at technology earnings, they've really held up. I look at it from the last six weeks. Technology estimates really haven't changed much, whereas almost every sector has gone to the downside.
PRATT: Merrill Lynch strategist Brian Belski agrees. He says investors have become too focused on the negative, particularly losses at financial and consumer discretionary firms.
BRIAN BELSKI, CHIEF U.S. SECTOR STRATEGIST, MERRILL LYNCH: If you strip those two sectors out of earnings, specifically for the second quarter, numbers are actually positive on a year-over-year basis for second quarter earnings. We believe that's a little known fact from investors.
PRATT: Friday, General Electric will report its quarterly results. Investors are particularly nervous about those numbers, because last quarter, GE missed and spooked the stock market. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
