FT: Companies Get Gloomy on Earnings Forecasts

Monday, 10 Sep 2012 11:25 AM

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U.S. corporations are as pessimistic as ever over their upcoming earnings, the Financial Times reported.

While stock markets have hit four-year highs, year-on-year earnings growth among Standard & Poor’s 500 Index companies slowed to 0.8 percent in the second quarter.

Analysts are predicting earnings growth to turn negative in the third quarter for the first time in three years.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist. 

Meanwhile, companies themselves are growing more negative.

In the second quarter, S&P 500 firms were three times more likely to say they would miss analysts’ expectations of third-quarter earnings rather than beat them, the Times stated, adding that the guidance ratio was the worst since the fourth quarter of 2008, just after the collapse of Lehman Brothers.

“Historically, we have only seen numbers like this during times of recession,” Christine Short, who tracks earnings at S&P Capital IQ, told the Times.

“It tells you something about how American executives see the world.”

Cooling growth in China and an ongoing European debt crisis in particular have dampened moods in corporate America.

In addition, revenue growth looks weak, especially considering sales outside of the United States account for about a third of S&P 500 revenues.

“Flat margins mean that earnings will be driven by revenue growth,” David Kostin, chief equity strategist at Goldman Sachs told clients last week, the Times added.

“ [But] macro headwinds should persist, constraining revenues through 2013.”

Separate data pointed to an equally gloomy outlook.

In the second quarter, the percentage of companies beating revenue forecasts hit its lowest level since 2009, while for every company that gave a positive outlook, nearly five companies gave negative outlooks, Thomson Reuters data found.

“What this is telling us is that the economy is slowing down, and that doesn’t bode well for the bullish earnings expectations, which we are so used to,” said Pankaj Patel, quantitative research analyst at Credit Suisse in New York, according to Reuters.

“Generally there’s always a gap, but this gap is much wider.”

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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