A minor cottage industry of sorts springs into action around
this time every quarter to prove that
) results tell us something about how other companies' results
will be in the earnings season. Take all of those comments with a
spoonful of salt. Yes, demand for aluminum products now comes
from a variety of industries like automotives and aerospace and
other. But to claim that Alcoa's fortunes carry any relevance
beyond the mining or even basic materials space is simply
As such, Alcoa's strong earnings beat after the close
yesterday is relevant only to itself and its own industry - it
doesn't tell us much beyond that. If anything, the earnings
) that came out before Alcoa carry a lot more informational value
about broader earnings picture.
So what should we be looking for this earnings season?
Expectations for Q1 remain low. Total earnings are expected to
be down -2.6% from the same period last year. Tough comparisons
and weak guidance account for the mediocre growth expectations
(2012 Q1 produced the highest quarterly earnings total since the
current earnings cycle started in 2009). But since roughly
two-thirds of the companies typically beat expectations in a
typical quarter, the final earnings growth tall will likely be
better than current expectations. My sense is that if Q1 is like
any other quarter, then we will see a growth rate close to the
flat line - meaning essentially no growth.
What would matter much more than the proportion and level of
'beats' will be guidance. And the reason for that is that
expectations for the coming quarters, particularly the second
half of the year, remain high. Current consensus expectations are
for total earnings to be up +2.3% in the second quarter and up
+10.9% in the second half of the year. Guidance will determine
whether those expectations will hold up or not. My sense is that
they wouldn't hold up and estimates for Q2 will start coming down
as the Q1 earnings season gets into high gear.
With economic data already showing signs of renewed weakness,
it will be hard for the market to hold its ground in such an
earnings background. This is pointing to tougher times for the
market in the Spring/Summer day.
are scheduled for release today at 10:00 AM EST and are expected
to increase by 0.5% after increasing by 1.2% in January.
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