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Cacophony by Conference Call

Even among similar companies, earnings outlooks are all over the map.

If listening to U.S. companies describe their near-term prospects has made you confused about where the economy is headed over the next few months, you're not alone.

Even companies competing in the same space have offered starkly different outlooks for the coming year. Software maker

Siebel Systems


said in a

conference call Wednesday that it is seeing a return to "more normal buying behavior." A day later, competitor



said there are no tangible signs of a pickup in customers' spending.

Financial services titan

Merrill Lynch


refused to give guidance for 2002. But


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it expects mid-double-digit profit increases this year.

Swedish mobile-communications giant



said Friday that market conditions would be "grim" for the "first couple of quarters." But

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said just the day before

that it expects low-double-digit sales growth in the second quarter and 15% sales growth in 2002.


What are investors to make of all these crosscurrents? Bob Robbins, an analyst at SunTrust Robinson Humphrey, said that because the economy is on the cusp of a recovery, it is not unusual for some companies to be seeing signs of life while others are still struggling to find a bottom.

"It's consistent with what's going on in the economy," he said.

Brown Brothers Harriman investment strategist Ron Hill noted that the lack of economic clarity has simply led companies to interpret the situation differently.

"When you're going through the bottom, it's very difficult to have a clear read on whether this is just a bounce or the start of an uptrend," Hill said. "We had many false starts last year."

Tough Print

One thing is for sure though, the data clearly show that more firms are lowering their guidance than raising it.

Of a total of 219 first-quarter preannouncements so far, 121, or 55%, have been negative, while 27% have been positive and 17% have been on target. On the surface that seems bad, but it is better than the 166 companies that lowered guidance at the same point last year. For the second quarter, there are 27% fewer warnings than there were at this point last year.

"This continuing improvement in the preannouncement and estimate revision pattern is a powerful favorable development in our judgment," noted First Call.

Still, the research firm added that "even though the pace of warnings and downward revisions has slowed and is likely to slow further, they will still be well above normal," and that likely means further slashing of estimates.


Despite that, some suggest that a few companies are still being overly optimistic about the future. In fact, that's what PeopleSoft claimed in its conference call as it pointed out that it has been the only company in its group to meet its original guidance.

Those firms offering slightly more upbeat assessments of the economy for the year have, on the whole, refused to back up those claims by raising their own earnings estimates. And those that increased their guidance now may be forced to lower it again as the year progresses.

It's certainly possible that other companies are being overly pessimistic, too, or that they simply can't or don't want to predict the future. After all, last year's prognostications ultimately proved to be way off base. By tempering investors' expectations, companies give themselves more room to outperform.

"There's a very good possibility for earnings to surprise on the upside this year," just as they have done in the fourth quarter, Hill said. Upside surprises are running 3 to 1 over downside surprises in the fourth quarter, he noted, because companies slashed estimates earlier in the year.

No One Knows

But are CEOs as clueless as everyone else when it comes to forecasting the economy? Charles White, a portfolio manager at Avatar Investors, thinks so.

"They know what's going on in their own business, or at least we think they do, but they can't determine the direction of the economy," he said. "You can go from the

Fed chairman all the way down to the man on the street, no one has a good idea."

White was referring to two seemingly contradictory speeches by Fed Chairman Alan Greenspan over the past two weeks.

In the first, Greenspan said it is "still premature to conclude that the forces restraining economic activity have abated enough to allow a steady recovery to take hold."

In the second, he said "there have been signs that some of the forces restraining the economy are starting to diminish and that activity is starting to firm."