The US first quarter earnings season cranks up this coming week, with 147 companies in the S&P 500 index reporting, led by a group of the world’s biggest tech companies – including IBM, Google and Facebook.
Last week’s nervy trading, especially on Friday, saw Wall Street sold off, with much of the concern centring on the flow of results and their contents, especially the impact of the high US dollar (see markets story).
Other problems on Friday were worries about Greece’s future in the euro and changes to China’s stockmarket rules aimed at cooling the mega boom.
But despite those factors, it is now clear now this reporting season will be very influential in driving investor sentiment in the US and other markets, such as Australia’s.
After the first week and a bit of reports – with more than 50 companies reporting so far, its clear the banks are the stars, as was expected, and oil related companies are going to be the laggards.
This earnings season is touted as likely to be the worst hit to revenue since 2009. Investor concerns for analysts and investors centre on the rising US dollar, falling oil prices and their impact on corporate profits.
According to Thomson Reuters, of the 128 outlook reports from S&P 500 companies, 105 were negative and 17 were positive. Among those 105 warnings on the quarter, at least 69 companies cited the stronger dollar as a headwind.
There is also a strong element of many companies smoothing investor expectations by weakening or cutting guidance – no doubt a lot of companies will beat that lowered guidance in the hope of seeing spikes in their share prices in coming week.
The impact of the higher dollar was seen in the quarterly results of companies like General Electric and Honeywell on Friday, and streaming video giant, Netflix midweek, which was especially hit hard.
Thomson Reuters says that across the S&P 500 index earnings are expected to fall 2.8% in the first quarter compared with the January forecast of a rise of 5.3%.
Thomson Reuters also says that of the 59 companies in the S&P 500 that have posted earnings to date, 74.6% have topped profit expectations, above the 63% beat rate since 1994.
But the early reports on revenue have been disappointing, with 45.8% of companies topping estimates, well short of the 61% rate since 2002.
The tech stocks reporting this week include IBM, eBay, Microsoft, Facebook, Yahoo, Google, Verisign, Texas Instruments, Qualcomm, Logitech, Netgear, plus telco giants, AT&T and Verizon. All the tech groups will show the impact of the sharp rise in the value of the US dollar, while the telcos will be watched for signs of weakening subscriber growth.
Solid results though from most of these stocks – especially Facebook, Microsoft and Google, could help change investor sentiment.
Consumer food giants, Coca Cola Co, Pepsi, Yum Brands and McDonald’s also report this week – all have seen sales growth slide or disappear in recent quarters and face strains on earnings from the high dollar and changing consumer preferences, especially in the US and particularly with Coca Cola and McDonald’s.
Starbucks, another US consumer products giant will report this week – the strong dollar will hurt offshore earnings and revenue, but domestic growth in the US has been solid in recent quarters.
Procter and Gamble, the huge consumer products company reports this week, along with one of the world’s largest ad groups in Omnicom. All will report some impact from the dollar. Whitegoods giants, Electrolux and Whirlpool are also down to report this week.
Haliburton and Baker Hughes, two big US oil services giant reports tonight and both will follow Schlumberger (last week) in reporting a sharp fall in earnings, and possibly more cuts in jobs and spending.
Toy group Hasbro and Wall Street bank, Morgan Stanley report tonight as well – the latter should do well, like Bank of America, Goldman Sachs and Citigroup did last week.
Credit Suisse, one of the two big Swiss banks, is also due to report and investors will be wanting to see the impact of the unpegging of the Swiss franc in January on its profits, along with the slide in bond yields across the eurozone as the European central bank buys billions of dollars in bonds a week.
Tomorrow night, another 31 companies listed including Chipotle Mexican Grill, Harley-Davidson, Lockheed Martin, UnderArmour, Yahoo! and Yum! Brands.
On Wednesday earnings results are expected from 29 companies including Boeing, eBay, Facebook, AT&T, and Coca-Cola.
On Thursday 46 companies issue profit results including Caterpillar, Microsoft, Google, Starbucks, Proctor & Gamble, and 3M. SAP the German business software giant is also due to report this week.
And on Friday there are nine companies listed including Simon Property and State Street. Bank.
Other companies reporting include drug groups, Astrazeneca, Novartis, Eli Lilly and Abbott Labs and Resmed, the Australian sleep products company, which reports on Friday morning, our time.
Car giant, General Motors is also down to report, along with other industrial giants such as Dow Chemicals, Dup Pont (both should be boosted by the fall in oil prices), American Airlines (it should show a big surge in profits because of lower jet fuel). United Technologies also reports mid week, along some big resource groups such as gold miner Newmont coal groups, Peabody, Westmoreland and Arch Coal, as well as the Canadian group, Teck and the big gold and copper miner, Freeport McMoRan which has already written down its oil and gas involvement.
Offshore companies from Europe, Japan, China and the rest of Asia start reporting, led by Nomura, the big Japanese investment bank, Mazda, Baoshan iron and Steel and Shenhua Coal from China. Companies in the Hyundai, LG and Samsung groups also report, along with Kia Motors – all are from South Korea. Azko Nobel, Tesco, Singapore Exchange and Tomtom are also down to report this week.
