Strategy

Mixed Picture on Earnings

The fourth quarter of 2005 is shaping up as a pleasant surprise by Wall Street standards; looking ahead, the picture is not so bright.
Stephen TaubJanuary 30, 2006

Although a number of high-profile companies such as General Electric, Yahoo, Alcoa, and Intel have missed Wall Street earnings estimates, the fourth quarter of 2005is shaping up as a pleasant surprise by analyst standards.

Of the 241 Standard & Poor’s 500 companies that had reported earnings as of Friday morning, 155 — 64 percent — beat the consensus forecast, reported the Associated Press. That’s significantly above the long-term average of 59 percent.

The wire service, citing data from Thomson Financial, added that 42 companies met the consensus forecast, while 44 fell short.

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On average, these companies racked up a 13.2 percent year-on-year improvement in earnings, according to Thomson.

That’s not allowing for Exxon Mobil Corp., which on Monday reported a record quarterly profit of $10.71 billion, or $1.71 per share. Excluding a gain from a lawsuit, earnings came in at $10.32 billion, or $1.65 per share, easily beating the consensus forecast of $1.44 per share, according to Bloomberg, citing Thomson.

Reuters noted Exxon’s 2005 earnings of $36.13 billion were 42 percent higher than its earnings for 2004 — and were larger than the economy of 125 of the 184 countries ranked by the World Bank.

Looking ahead, the picture is not so bright.

The AP noted that of the 62 members of the S&P 500 that have issued forecasts, the ratio of companies with negative guidance to those with positive guidance is 2.4 to 1. The typical ratio is closer to 2 to 1, the wire service added.

Bloomberg pointed out that since the beginning of this year, analysts have cut their first-quarter earnings estimates for 6 of the 10 main industry groups in the S&P 500, including financial and computer-related companies. Industries offering positive guidance include oil producers, utilities, and telecom companies.

“We just have a hard time seeing how the market is going to take off,” Michael Vogelzang, president and chief investment officer at Boston Advisors Inc., told Bloomberg. “You may be in the uncomfortable situation in which overall corporate earnings are dependent on $70 oil.”

“Investors are very concerned about future earnings, even more so than usual,” Steve Neimeth, senior vice president and portfolio manager at AIG SunAmerica, told the AP. “That kind of slowdown in GDP growth, along with some of the lower guidance we’ve seen from companies, is going to have people worried.”