Lower Profit Warnings Outpace Brighter Outlooks
Earnings warnings are outpacing brighter outlooks at the end of this third-quarter at nearly the same rate they were last year when Hurricane Katrina jolted the U.S. Gulf Coast.
The tick higher in warnings comes as profit and revenue promised earlier in the year look increasingly less tenable amid slowing U.S. growth and tighter consumer purse strings.
Yahoo Inc. on Tuesday was the latest bellwether company to warn, saying third-quarter revenue will be at the bottom half of its forecast range due to weakness from two of its biggest advertising segments - autos and financial services.
And on Monday, Dow Jones & Co. Inc. cut its third- quarter forecast due to softer advertising at the Wall Street Journal.
The (economic growth) slowdown is causing companies to rein in their forecasts, said Charles Rotblut, a senior market analyst with Zacks Research in Chicago. People are looking at GDP slowing down and inflation slowing down.
Preannouncements so far for September are comparable to September 2005, according to Reuters Estimates.
Through Wednesday, 362 companies have preannounced, with 82 forecasting earnings below market expectations, 49 above and the rest in line.
That compares to 460 preannouncements in all of September 2005 when certain sectors and regional companies were ascertaining the damages from Katrina, with 126 warnings, 62 raised outlooks and the rest were neutral.
In June 2006, which is the comparable month to September, but for the second quarter, of 491 total preannouncements, 86 were lowered and 125 were raised.
Yet, for most companies the second quarter is seasonally the weakest.
Other quarterly and annual warnings have come from DaimlerChrysler, home products manufacturer Masco Corp. and office furniture maker Steelcase Inc.
If that ratio were to stay negative through the beginning of October, that would put pressure on the market, said Sam Rahman, a portfolio manager with Baring Asset Management in Boston.
He blames the weakness on several factors including higher commodity prices in July and August pressuring profits as well as moderating economic growth.
U.S. Growth Domestic Product growth cooled to 2.9 percent in the second quarter from the red-hot pace of 5.6 percent in the first.
Growth in U.S. GDP is expected to come in at 3.4 percent in 2006 and then taper off to 2.8 percent in 2007, a recent Reuters poll of economists showed.
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