Weak Q4 Earnings Seen, With Falls For Techs, Industries

Investor's Business Daily

Hints of new capital spending in 2013 and signs of a Q4 revenue rebound will draw particular attention this earnings season as companies look beyond last year's fiscal uncertainty at home and economic gloom abroad.

S&P 500 companies should report a 2.7% earnings rise in Q4 vs. a year earlier, according to analysts as of Tuesday morning, Thomson Reuters said. That's up from Q3's scant 0.1% gain.

Lawmakers have yet to reach deals on raising the federal debt ceiling and averting steep, automatic budget cuts. But tax rates generally look settled, and companies may finally have enough certainty to loosen purse strings.

Meantime, China and Brazil appear to be reviving as the European debt crisis eases. That could help U.S. exporters.

Now comes Q4 reporting season, when firms tend to set bullish expectations on the year ahead.

"It's safe to expect a glass three-quarters-full perspective," said Lawrence Creatura, a portfolio manager at Federated Investors.

Such optimism gets moderated as the year progresses.

But he will look for any increase in new projects or hiring after recent stagnant capital spending.

Macroeconomic data also have been trending better lately, and Creatura said he hopes to see some confirmation of that from consumer-focused industries.

Mark Luschini, chief investment strategist at Janney Montgomery Scott, thinks companies can be "cautiously positive" as they set capital plans.

"Businesses can look around a little bit and see what's happening fundamentally," he said.

Revenue will be watched closely as it follows a 0.8% dip in Q3. S&P 500 companies are seen growing sales by 1.9% in Q4.

Those top-line figures also will reveal if a recent disconnect with earnings continues. Historically, about 62% of companies beat estimates, Harrison said. But in Q2 and Q3, the share of companies topping sales targets has fallen well short even as the share of earnings estimate beaters held. That suggests profits are coming more from cost cuts vs. growth.

"That goes to how companies create earnings growth in the future," Harrison said.

However, aluminum giant Alcoa (AA), which unofficially kicks off earnings season, late Tuesday reported in-line profit but better-than-expected sales.

The housing recovery likely lifted year-end results at builders, furniture and appliance retailers, and regional banks with expanding mortgage operations, said Greg Harrison, a corporate earnings researcher at Thomson Reuters. But industrial firms, es pecially those with large global exposure, probably had a rough Q4.

Technology companies are expected to show an earnings decline, due to weak PC sales amid the ongoing shift to mobile devices. Weak revenue also has forced companies to trim tech budgets.

Apple (AAPL), which reports Jan. 23, also may see a rare EPS fall.

On the upside, disk drive maker Seagate (STX) reported better-than-expected preliminary results late Tuesday.

Earnings results ramp up next week, with Bank of America (BAC), eBay (EBAY), General Electric (GE) and Lennar (LEN) on tap.

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