Desperately Seeking Support By David Donnelly Special to TheStreet.com 3/4/01 8:50 AM ET

Ever been hit by a hammer? Every time the market tries to rally, down comes another blow in the shape of some massive profit warning. As wealth destruction takes hold, so does that downward spiral of flagging confidence, causing customers to pare back spending and management to cut back inventory and jobs.

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Is there light at the end of this tunnel? Mr. Greenspan seems to think so, stating, like Chauncy Gardener in the film Being There, that "there will be growth in the spring." But, what if he can't walk on water? His real-time comments have raised the stakes; if he is wrong his credibility will be blown out of the water and good policy will be hard to achieve. As I've said before -- ask Japan.

The earnings results season is in full swing, and at the top of everyone's list of concerns is management's outlook for the year. It is no longer economically incorrect to join the deluge of bad news and throw in the kitchen sink. After all, when things do improve, CEOs will want to strut the recovery stage and be seen as winners. We will no doubt have schemes submitted to reduce option prices to incentivise them -- fun times ahead!

In the meantime, Pearson (PSO:NYSE ADR - news - boards) reports on Monday, and the results should come in as expected. The past year was a good year for the company, with U.S. dollar strength and a strong European advertising market. Yet the focus will be on 2001 and beyond. The advertising industry is looking pretty weak this year but has been very buoyant at The Financial Times so far.

Internet spending, while higher than expected in 2000, will be lower in the future. Pearson now has a superior Internet strategy with FT.com and the Learning Network when compared to its peers. The challenge now is how to turn the Learning Network into a revenue stream. It is currently the leader in Internet traffic, but year 2000 revenue will be around only 15 million pounds.

Meanwhile, growth at the FT Group remains strong, and good progress is being made in integrating Pearson's educational content with that of NCS, and cost synergies are on track. Pearson is a quality media play, but it is right to be slightly wary of a weak Internet sector and a weak advertising outlook. On that basis it looks fairly valued: Consensus earnings-per-share estimates are 54.4 pence for the past year and 62.3 pence for the current one.

Dutch retailer Ahold (AHO:NYSE ADR - news - boards) announces final figures on Tuesday. Ahold is now the world's third-largest food retail chain, with the majority of earnings emanating from U.S. sales for last year, which have already been disclosed; they were up 56% at 52 billon euros, while organic sales growth at constant currency rates was 6.3% higher for the year. The consensus EPS forecast for last year is 1.47 euros.

The company is a strong global player and the stock has outperformed the Morgan Stanley Pan-European Index by 10.5% this year. Further momentum to the share price is possible once the company has met with U.S. analysts at the end of this week and increased their understanding of the growth expectations of its business.

On Wednesday LVMH Moet Hennessy Louis Vuitton (LVMHY:Nasdaq ADR - news - boards) reports final results. LVMH had a good year in 2000, with better-than-expected sales growth across all divisions, and management has also indicated that operating profit has exceeded its 25% growth target. However, 22% of sales comes from the slowing U.S. market. Louis Vuitton contributes more than 50% to the group's profits, and it is thought that Japanese tourists make up a large proportion of those sales. Here's the rub: Fewer Japanese will be traveling with their weakening yen if something isn't done to halt the worsening economic situation in Japan.

Carrefour announces final results on Thursday. The final quarter for Carrefour was difficult: Sales growth deteriorated in all key countries, particularly in France and Spain, which together account for around 70% of sales and 80% of profit. The problems have been caused by a loss of customers after rebranding the recently acquired shops under the Carrefour format, which are perceived by customers to be more expensive. Whether these weak sales have an effect on earnings is unclear; there has not been any mention of a profit warning, so far.

The outlook for 2001 will be important; while the deteriorating sales trend is unlikely to improve during the first half, forecasts are based on a turnaround. Winning back customers is the most important issue -- let's see what plans they have to achieve that.

Final thought for the week: I hate the idea of being perceived as a prophet of doom, as I'm a natural optimist. However, I have great respect for the markets, and the fact is that they keep pushing down and testing new lows. The old adage says "Don't fight the Fed," but, as I pointed out last week, the old order changeth, and the safety net that has been factored into our assumptions may just not be there.

In 1974, I remember the bear market just seemed to go on and on and suddenly one day the market turned. We all thought it was just another dead cat bounce, but it was the beginning of a new bull market, based on a recovery in earnings. That will be the driver this time, too. The problem is we seem to be some way off that phase at the moment.

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