earnings reports
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Alcoa Earnings Report Uneasy Start to Second Quarter (NYSE: AA)
Investors already have a cautious stance in the market amid growing fears about the world's biggest economies, and Monday's Alcoa (NYSE: AA) earnings report didn't help.
The aluminum producer, which always kicks off the earnings season, delivered more of a punt than a kickoff. The Dow bellwether reported an 81.3% drop in profits, as the global slowdown and production cuts weighed on profits.
Reporting after Monday's market close, Alcoa said income from continuing operations came in at $61 million, or 6 cents a share, on revenue just a hair under $6 billion. While significantly lower than the same period a year ago, the lackluster results still managed to beat Wall Street's tepid expectations (analysts were looking for 5 cents on revenue of $5.8 billion).
Chairman and CEO Klaus Kleinfeld said in a statement following the earnings release, "Alcoa maintained revenue strength amid solid liquidity by driving high profitability in our mid and downstream businesses and by reducing costs and improving performance in our upstream businesses."
Contributing to the profit decline was a global glut resulting from stagnant and slowing growth in many areas around the world, especially China.
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Dropping Expectations Point to Rocky Earnings Season
With more companies issuing warnings about their results in recent weeks, investors may see more than a few disappointments in the second-quarter earnings season.
Companies faced many sources of pressure on their bottom lines over the last quarter, including persistent unemployment, the disruption of the global supply chain from the Japanese earthquake and tsunami, and high commodity and energy costs.
"This is where we can get down to the fundamentals of this market and finally see how companies are actually doing in this economy," Jack Ablin, chief investment officer at Harris Private Bank, told CNN Money.
Once-lofty expectations for the second quarter have been slipping for weeks. The Standard & Poor's 500 share-weighted earnings estimate has dropped four weeks in a row, from $232.5 billion on June 9 to $222.9 billion last week.
Of greater concern is that 84 companies - 17% of the S&P 500 - have given negative preannouncements, while just 33 have given positive preannouncements, according to Thomson Reuters data.
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Earnings Death or Taxes
By Lee Adler
View original article here
Weak corporate tax collections in the first quarter and through April 11 could mean that many quarterly earnings reports may surprise the market by failing to meet analysts' inflated expectations. Either corporate profits are falling sharply or else corporations have suddenly become much savvier about offshoring income and avoiding taxes. While they may be getting better at avoiding taxes, it seems unlikely that they've suddenly all become such geniuses at it simultaneously. My bet would be that when everybody has reported, aggregate earnings will fall short of consensus estimates.
The Treasury Department publishes daily data on tax collections. As of 5 PM each weekday it releases the Daily Treasury Statement for the previous day. That's as close as we can get to a real time economic barometer short of being at the cash register. It's definitely useful in gauging whether subsequent corporate earnings reports will meet, beat, or miss expectations. Corporate tax collections and subsequent reported aggregate earnings have correlated well historically, not just in terms of the trend, but even to the extent that the peaks and valleys in tax collections are echoed at lower amplitude in the earnings line.
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Buy, Sell or Hold: BCE Inc. (NYSE: BCE) Has Canada Covered
The market right now is torn between data that suggests the U.S. is waning and reports that many companies are increasing guidance and beating earnings estimates.
This has created a lot of volatility, and if you already have enough strong growth plays in your portfolio, adding some large, established companies with stable cashflows and hefty dividend yields could ease some of the anxiety you may be feeling.
Such an approach in my opinion is superior to bonds, since bond yields are just too low at these levels. That means you actually risk capital losses if they go up. In addition, safe dividends paid by leading companies are higher than bond yields. And unlike bonds, big companies usually can adjust prices in accordance with inflation.
There are a lot of companies for an investor to choose from, but BCE Inc. (NYSE: BCE) jumps out at me immediately. It is a dominant, well-managed company, and it has strong upside potential.
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Buy, Sell or Hold: Tata Motors Ltd. (NYSE: TTM) Is Kicking Into High Gear
I am constantly hunting for profitable opportunities for my Money Map VIP Trader, the Money Map Report and this column in Money Morning. And I realized months ago that India would be the one major emerging market that would notably accelerate in the second half of the year and into 2011.
To take advantage of that trend, I recommended a very pro-cyclical play in my trading service, which you can only see by subscribing. But I also kept up my search and was able to find another good opportunity to recommend here. That opportunity is Tata Motors Ltd. (NYSE ADR: TTM).
About a month ago, my colleague and Money Morning Managing Editor Jason Simpkins articulated a view of the Indian economy that clearly details how that country is looking to accelerate growth. The major headwind for India has been inflation - more specifically, food prices.
However, India is experiencing a normal monsoon season and will soon see its production of food increase and food prices drop - the recent spike in wheat prices notwithstanding. This drop in food prices, coupled with renewed fiscal discipline will help bring inflation down from around 10% to about 6% by year end.
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Why Upbeat Earnings Reports Mean Caution to Investors
While earnings reports continue to pour out each day, investors should be careful before being excitedly swayed by strong financials - there is much more of the big picture to consider.
Stocks failed to get traction in the middle of last week after Alcoa (NYSE: AA) and Intel (Nasdaq: INTC) earnings reports underwhelmed investors, and Friday they spun off the road. The culprit: Fears that recent earnings gains represented a peak, and that weak readings on the economy were more representative of current conditions.
Retail sales disappointed and the Federal Reserve cut its 2010 growth forecast. Even word that Singapore grew at a record pace of 19.3% in the second quarter couldn't lift the air of despondency on Wall Street.
To read why there's a cloud over Wall Street, click here.
