By Wallace Witkowski, MarketWatch
Average beat of lowball forecasts may not prevent decline
SAN FRANCISCO (MarketWatch) -- Enjoy the better-than-expected
fourth-quarter earnings season as it draws to a close, because the
first quarter is looking downright ugly.
Stocks finished higher for a second week in a row as the S&P
500 Index (SPX) closed at a record high of 2,096.99, the Dow Jones
Industrial Average (DJI) finished above 18,000 for the first time
this year, and the Nasdaq Composite Index (RIXF) turned in a 3.3%
gain.
Lower energy prices may have boosted consumer spending, but the
impact of the energy sector on the S&P 500 is having a more
pronounced drag on first-quarter estimates compared with the fourth
quarter.
Energy earnings have declined 21.5% so far for the fourth
quarter, more than an expected 17.5%. Big upside surprises,
however, from tech, consumer discretionary, and health care
earnings managed to put the S&P 500 on track for a 3.1%
earnings gain, up from expected growth of 1.7%, according to John
Butters, senior earnings analyst at FactSet.
For the first quarter, virtually every sector is expected to
perform worse than was estimated at the end of 2014. Energy
earnings for the first quarter are now expected to drop 61.8%,
rather than 29.1%. That's helping to push S&P 500 earnings
expectations to a 3.6% decline from a year ago. Nearly three months
ago, a 4.1% gain was expected.
Even if earnings get the average 2 to 3 percentage point boost
from lowball estimates, that would still be the first quarterly
earnings decline since the third quarter of 2009.
Forecasts for the first quarter are more negative than usual. Of
the 74 S&P 500 companies that have issued forecasts, 63, or
85%, are forecasting earnings below the Wall Street estimate,
according to Butters. The five-year average is 68%.
One Dow component, Wal-Mart Stores Inc. (WMT), along with 50
S&P 500 components report earnings during the holiday-shortened
week.
Notable earnings reports this week
Report date Company/Ticker (FactSet EPS / revenue estimates)
Mon., Feb. 16 No earnings. Presidents' Day.
Tues., Feb. 17 Medtronic PLC (97 cents / $4.25 billion)Goodyear Tire & Rubber Co. (60 cents / $4.37 billion)
Weds., Feb. 18 Duke Energy Corp. (87 cents / $6.18 billion)Marathon Oil Corp. (4 cents / $2.26 billion)Marriott International Inc. (65 cents / $3.47 billion)
Thurs., Feb. 19 Wal-Mart ($1.54 / $132.53 billion)Nordstrom Inc. ($1.35 / $4.01 billion)Priceline Group Inc. ($10.10 / $1.8 billion)Intuit Inc. (loss of 13 cents / $787 million)
Fri., Feb. 20 Deere & Co. (84 cents / $5.5 billion)Laboratory Corp. of America Holdings ($1.64 / $1.5 billion)
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