The earnings calendar for companies' first-quarter reports gets busy this week, and the perennial excuse of companies blaming poor weather for bad earnings will carry a bit more legitimacy this year - which only means more weather-whining than usual.
Expect the sectors most directly affected by the weather - transportation, autos, retail, restaurants - to focus on the brutal winter, but they certainly won't be the only ones.
"It was the most disruptive winter we've had in some time," Ed Yardeni, president and chief investment strategist at Yardeni Research, told Barron's. "Anyone who can get away with a weather excuse for bad earnings will use it."
The earnings calendar unofficially kicks off with the report from Alcoa Inc. (NYSE: AA) after the markets close today (Tuesday), although 21 companies already have reported.
Most analysts foresee a rocky earnings season, and not just because of a winter that featured several appearances of a "polar vortex." The companies themselves have been revising their guidance downward for weeks.
Since January, 93 companies in the Standard & Poor's 500 have warned that their first-quarter numbers will fall short of estimates, compared to just 18 that have revised their guidance upward.
The reversal is starkly apparent in FactSet's periodic survey. Back in January, analysts said they expected corporate profits to increase 4.4%. But now analysts predict earnings will actually drop 1.2%, which would make it the first time operating profit has fallen year over year since Q3 of 2012.
The silver lining to the lowered expectations, of course, is that they will be easier to beat when it comes time to announce the actual numbers.
Of the 21 companies on the earnings calendar that have reported so far, just over half have beaten expectations on both sales and profits, which Savita Subramanian, head of U.S. Equity Strategy & U.S. Quantitative Strategy at Bank of America Merrill Lynch, noted in a report this week were "higher than last quarter's 42% hit rate, and the best result from the early reporters since 1Q12."
And nine of the 21 cited the weather as hurting results, ranging from FedEx Corp. (NYSE: FDX) and Costco Wholesale Corp. (Nasdaq: COST) to food maker General Mills (NYSE: GIS). FedEx CEO Fred Smith uttered the word "weather" no fewer than 41 times in the earnings conference call.
So while investors need to brace themselves for a blizzard of weather talk as we move through the earnings calendar's busiest weeks, what will move the stocks will be what companies say they expect to happen through the balance of 2014.
Earnings Calendar: What to Watch Instead of Weather-Whining
As grim as some of the numbers may be during this earnings season, the bigger picture doesn't look nearly so bad.
For one thing, winter is over, and business activity across the country is expected to revive accordingly.
"The telling variable was that consumer confidence was completely unaltered. It was an inability to spend as opposed to an unwillingness to spend. As the weather improves, we likely get some of that back," Eric Lascelles, chief economist at RBC Global Asset Management, told The Globe and Mail.
Another reason not to fret over whatever happens during this quarter's earnings season is that most of 2014's growth in earnings - which FactSet estimates at 10.9% - is expected to come in the last two quarters.
And that will carry across most sectors. FactSet sees profit growth in the consumer discretionary sector rising 10%, in the technology sector 8.5%, in the financial sector 10%.
Barring unforeseen complications, earnings boosts like that will prove positive for stocks and should keep the bull market pushing higher.
Still, companies are going to need to show that one bad quarter really was just one bad quarter - and that's going to come down to what sort of guidance we hear over the course of this earnings calendar.
"Companies can get away with blaming the first quarter on the weather, but that second-quarter guidance had better make up for it," Howard Silverblatt, chief statistician at S&P Dow Jones Indices told Barron's.
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