Q3 earnings may be disappointing

Alcoa's report Tuesday kicks off what may be a difficult season. Results may fall from a year ago, with revenue flat. The best group may be homebuilders.

By Charley Blaine Oct 8, 2012 12:08PM
Charley BlaineShortly after Tuesday's close, aluminum giant Alcoa (AA) will report its third-quarter results and kick off what is supposed to be a weak third-quarter earnings season.

Investors will hear a lot from big multinationals like Alcoa, Caterpillar (CAT), Boeing (BA), 3M (MMM), United Technologies (UTX) about how business has been affected by slowing economies in Europe, Japan and China.

Later on, in early November, when retailers start to report, the focus will shift to domestic consumer confidence, with analysts and investors pondering the prospects for this year's holiday shopping season.

When all is reported, at least for Standard & Poor's 500 companies, earnings will have fallen 2.4% from the third quarter of 2011, the first decline since the economic recovery began in late 2009, according to Thomson Reuters. If earnings warnings to date are any indication, the decline may be worse.

The earnings may well weigh on a stock market that has had a splendid 2012, although stocks have been mostly lower today.

As of Friday, the Dow Jones industrials ($INDU) were up 11.4% for the year after Friday saw the index close above 13,600 for the first time since December 2007. The Standard & Poor's 500 Index ($INX) was up 16.2%, while the Nasdaq Composite Index ($COMPX) was up 20.4%. (Stocks opened lower on Monday.)

Article continues below.
But the market has been struggling to move beyond current levels. The Dow's close above 13,600 came after repeated assaults, and it is lower Monday.

Meanwhile, there are headwinds galore facing investors: Europe, the election and the fiscal cliff and the tricky Chinese economy. The Chinese economy is growing -- but not as fast as before. The big question is what "not as fast as before" actually means.
Plus, there is the risk that some shooting involving Israel and Iran may erupt. Syria started firing into Turkey last week, raising the risk that something more broadly bad may erupt in the Middle East.

Some companies, like Ford Motor (F) and General Motors (GM), have acknowledged that their European businesses are suffering very large losses because the debt crisis and economic woes in, say, Italy, Spain, Greece and even France are clobbering sales.

A few analysts have suggested that Ford and GM just shutter their European operations -- not so easy a task under European labor laws.

Others like Hewlett-Packard (HPQ) are struggling to just to get stabilized. HP has struggled through  multiple CEOS over the last decade and a paradigm shift in technology that currently prizes the device -- tablet or telephonic -- over the personal computer.

Thomson Reuters believes a weak earning season is ahead because of preponderance of warnings of shortfalls over higher guidance.

Some 91 companies have issued earnings warnings; only 21 have raised estimates. The 4.3-to-1 ratio is the worst since the first quarter of 2001. That counts because, Thomson says, preannouncements do track closely with final results.

In addition, 25 S&P 500 have reported third-quarter results already. While 52% have beaten estimates, that's the lower than the long-term average of 63% and the 67% average over the last four quarters.

Many will blame the desultory results on a higher dollar, which impacted second-quarter results for many companies. But the dollar has moved lower against a number of currencies, especially the euro, since the end of July. A lower dollar will increase the value of profits earned outside the United States.

If you look just at the ten sectors of the S&P 500, about half are expected to see earnings break even or show gains, with consumer discretionary stocks the best performers, followed by financial companies, industrial and technology companies.

Gains in the consumer discretionary sector will be driven by homebuilders and home-furnishing companies, which have been rising  sharply as evidence continues to suggest a modest recovery in housing has begun.

PulteGroup (PHM) is up 163% this year, tops among S&P 500 stocks. Lennar (LEN) is the S&P 500's fifth-best performer, up 93%. Sherwin-Williams (SHW) has gained 74.4%. Whirlpool (WHR), up 80.4%, is eighth among S&P 500 stocks for the year.

Financial stocks will be the second-best performing group, led by regional banks and real estate services.

The laggards will be materials and energy companies, which have seen commodity prices flatten or fall. The group is expected to see earnings fall 24%, Thomson Reuters says. Aluminum will be among the worst performers.

In addition to Alcoa, we're talking about U.S. Steel (X), coal-producer Alpha Natural Resources (ANR), down 68% this year, iron-ore producer Cliff's Natural Resources (CLF), down 38.5%, and fertilizer makers like Mosaic (MOS), which reported disappointing results last week.

Revenue will gains will be equally tough to come by. Thomson Reuters sees revenue for the entire S&P 500 basically flat from a year ago.

An 11.1% gain in utility revenue (thank this year's drought for the gain) and a 6.7% gain in revenue for the healthcare sector will be offset by a 17% decline for the energy sector. A big factor in energy will be slumping coal prices as utilities switch to cheap and cleaner-burning coal.

Oil and gas production revenue will fall 63%, with oil and gas refining and marketing revenue falling 14%. The declines are functions of lower prices, lower demand and a higher dollar for much of the quarter.

Technology revenue will be up 4.4%. What's not clear is what happens to the growth rate is you subtract Apple (AAPL) out. Apple reports fiscal-fourth-quarter results after the close on Oct. 25.  The consensus estimate is for a 28.7% revenue gain to $36.4 billion.
Oct 8, 2012 1:35PM

The current definition of a Recession is not realistic. Ask just about anyone running a small business if we have been in a recession the past 4 or 5 years and they'll say HECK YES!



Oct 8, 2012 1:36PM
I can't believe Merkel is going to Greece.  She's really putting her neck on the line, literally.  If something happens there things will turn to liquid crap pretty fast.
Oct 8, 2012 12:38PM
Oct 8, 2012 3:20PM
"The current definition of a Recession is not realistic. Ask just about anyone running a small business if we have been in a recession the past 4 or 5 years and they'll say HECK YES!"

It goes SO far beyond that.
Oct 8, 2012 2:14PM

Companies are sitting on a record amount of cash.Let`s not have a pity party for them.With

all the cash they could provide good healthcare coverage.

Oct 8, 2012 1:14PM
It looks like the Reality of book cooking is about to hit the fan. NO economy for years and the steerage that was done solely for greed. Where do you go grubbers, once you've screwed the whole world?

Best news of the day... Germany spanks Spain in the bank and tells them-- no more. Funny thing, Germany... Spain's current bank circumstance is identical to the same state it was in a year ago. A HUGE amount of global money (formerly called currency) is stuck in there and won't ever see the light of day again. Second best news... Central banks think they can print their way to job recovery. No they can't... but non-lobby indentured elected Officials who want to live beyond their term can... remember Trickle Down? It's Cut Up time. Cut up executive employment contracts, bonds, fiat-printed dollars, the At-Will, Tax Reform and Gramm Leach Bliley Acts.Get your arses to work doing ANYTHING other than paper and button pushing. If you fail, there's always jail.

Close the Banks. End the Federal Reserve. Get RID of Wall Street. Start investing EVERYTHING in job recovery NOW or we won't be here by the New Year. Grubbers-- you have to go. 

Oct 8, 2012 4:11PM
MSN ... how about good/hopeful news we will read?  I'm not reading your miserable news ... we've had 4 years of it!!!
Oct 8, 2012 1:24PM
"PulteGroup () is up 163% this year, tops among S&P 500 stocks. Lennar () is the S&P 500's fifth-best performer, up 93%."

Doesn't this tell us all a LOT? The vampires who live off sprawl made sure it's cash cows continued to thrive while established housing everywhere else saw the biggest losses... EVER. It should occur to us all that BANKS-- the sole lending portal left in America after they wiped all other venues out in 1999--- still funds over-priced out-in-the-boondocks McMansions to clueless idiots whose jobs do nothing worthwhile or takes from the American economy (bankers lawyers button and paper pushers). How many new construction homes were sold to short sellers and walked aways? How many STUCK US with the unpaid debt on their old home? You don't think those new constructions are efficient and energy conserving and/or producing do you? They are BIG poorly constructed boxes in the middle of nowhere.

THANK YOU WALL STREET for pumping these beasts of national burden to nosebleed profits.
Oct 8, 2012 3:28PM
And who lives in the dream world that says that 2012 3rd qtr earnings have to be better than 2011 3rd qtr earnings? I'm sorry W/S but in this economy you will not find that happening too often. Wall Street has to get more up to date in the way they evaluate a companies performance. Pretty much the W/S press department is telling us that the market will drop only because 3rd qtr 2012 may not be better then 3rd qtr 2011.  They should just be glad a company is making a profit instead of all this 2012 vs 2011 crap!!!!
Oct 8, 2012 3:31PM
Consumer Confidence is in the Crapper=  Charley you need another day Job !     DIE BANK OF AMERICA DIE !!
Oct 8, 2012 3:27PM
"I can't believe Merkel is going to Greece."

You mean... someone in a position of authority and decision is going to look out the window and see the state of the garden they made? Greece has guts. Our American Congress is gut-less and EVERY American better realize that on election day. FOUR years to work together and did their best to collapse us.
Oct 8, 2012 3:24PM
"they smart as that makes them stronger "CASH IS KING"; they not stupid as that cash will either keep them alive longe"

This is what... an ape-man posting? No son, cash isn't king when you got handed the business from the Founder, exploited the iconic brand, shipped the jobs overseas and invested counter to the American economy. Then-- guillotine is king and I see a whole bunch of hired-executive grubbers heading for it. This has been a flat-out terrorist attack by greedy nutcases on normal people globe wide. Where do you go once you've screwed the whole world? Hell has space.
Oct 8, 2012 4:59PM

On CNBC they said that if Romney get elected the USA will see "worst austerity programs" over his 4yrs than Europe, not growth as he claims. THEY SAID HIS PLANS WILL SLOW THINGS DOWN. If Obama gets elected, if Congress says "No" again to infrastructure projects like FDR had to build the economy then he will sign an exec order to get jobs. They think he will deal with the 'No' Congress as his first agenda.

PS: Did you see the Romney 47% FLIP FLOP, now he says he was 'WRONG' to say that the 47% are victims vs just plain ignorant. Romney key skill, FLIP FLOP !!!

Oct 8, 2012 4:29PM

Thank you Mr. President and fellow Democrats for pulling us out of the "Great Depression 2" that was created by that brain dead George W. Bush, his fellow Repukelicans and their failed policies.


"Forward for 4 more years and forever"!


Barack Obama in 2012!


Chris Van Hollen in 2016 & 2020!


Long live Christian Socialism!


God bless America!

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