Oct 23, 2004 3 min read

By Michael J. Martinez AP Business Writer

NEW YORK (AP) – Third-quarter earnings for the large-cap companies listed in the Standard & Poor’s 500 index have met Wall Street’s expectations overall, but the lack of company forecasts on future earnings – or disappointing outlooks in many cases – is starting to have investors worried.

Of the 255 S&P 500 companies that reported quarterly results as of Friday morning, 159, or 62.4 percent, beat Wall Street’s expectations for their earnings, and another 45, or 17.7 percent, have met those expectations, according to Thomson First Call. That leaves 51 companies, or 20 percent, whose earnings fell below forecasts.

That puts the S&P on pace for an overall 15.2 percent earnings growth rate, according to Thomson First Call, slightly better than the 14 percent most analysts had expected from this earnings season.

“These are very comparable to the numbers we’ve seen over the last 10 quarters, and the operating earnings are stronger than we thought they would be,” said Hugh Johnson, chief investment officer at First Albany Corp. “But what’s more important to investors is what the companies say about future earnings and, right now, they’re not saying a lot.”

Indeed, less than half of the S&P 500 companies who have reported earnings so far have issued any kind of future earnings guidance – up or down – on their earnings prospects for the fourth quarter and beyond.

“I think that’s a reflection of the great confusion out there not only among professional economists but even among leaders of corporations about the impact of crude oil prices on consumer spending,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “Nobody knows what’s going to happen, so they’re not saying anything.”

Of those who have issued fourth-quarter forecasts, 33 companies have improved their outlooks, 45 had negative outlooks and 18 said they were on target for their earnings in the current quarter.

“With oil prices where they are and all kinds of questions about the economy, companies are being very, very conservative, and managing their outlooks with a great deal of caution,” Johnson said. “They’re setting the bar low, hoping they can surpass it when it’s time to actually report earnings.”

It’s those questions about earnings forecasts that have dragged on the markets, along with the economic uncertainties brought on by energy prices. And the largest of the large-cap stocks have been hit hardest. While the S&P 500 itself has fallen only 0.73 percent as of Thursday’s close, the Dow Jones industrials have dropped 2.13 percent.

With 20 of the 30 Dow industrials having reported earnings by Friday, five missed expectations, 12 surpassed them and three were in line with Wall Street’s forecasts. And while 17 of those 20 saw profits rise from a year ago, only two companies improved their guidance for the fourth quarter and beyond. Seven Dow components reaffirmed previous forecasts, four lowered their earnings targets and seven chose not to give any preview of future earnings at all.

While the lack of earnings forecasts is a worry, the vast majority of S&P 500 companies have improved their profits compared to the third quarter a year ago. According to First Call, 198 companies, or 77.7 of those reporting as of Friday, saw their profits rise from a year ago, while 54 companies, or 21.2 percent, saw them fall and three companies managed to match last year’s quarterly profits.

“I think what we’re seeing here is a pretty good reflection of the overall economy,” Tower said. “We’ve seen a number of economic statistics that show we have decent, but not inspiring, economic growth, and I think that’s confirmed by these earnings reports.”

AP-ES-10-22-04 1611EDT