While third-quarter earnings have been impressive so far, the outlook from a handful of blue-chip companies has been less than encouraging.
So far, 135 of the
companies have reported third-quarter earnings, and 64% of them have beaten the estimates. Some 26% have met analysts' forecasts, and just 10% have missed, according to Thomson First Call. Corporate earnings are now expected to be up 18% in the third quarter.
That earnings growth has been so solid is not surprising, given the strength in the economy last quarter and the still-sluggish job market, which enabled firms to keep costs down. According to the latest Blue Chip survey, gross domestic product grew almost 5% in the third quarter, aided by tax cuts and government spending.
But this surge in activity hasn't prevented some bellwether companies from tempering analysts expectations going forward. Last night
said it expects to earn just 98 cents a share on a pro forma basis next year, down from the consensus estimate of $1.05.
Earlier in the week,
reported slightly lower-than-expected revenue for the third quarter, and the company's chief executive, Sam Palmisano, said it's "too early to say that a rebound is at hand."
warned that earnings would be at the low end of the range this year. "We see slow but positive economic growth continuing," CEO Jeff Immelt said on a conference call.
This was hardly the kind of news investors had been pricing in. IBM rose more than 7% in the third quarter, while GE gained 4.5% and eBay was up 3%.
Another worrying sign has come from consumer-appliance maker
, which said net income fell 40% in the quarter. It also lowered its outlook for the full year.
Other companies have fallen victim to high expectations.
, for example, actually raised its 2003 outlook to $3 a share from a previous estimate of between $2.75 and $2.90, but Wall Street had been expecting $3.15 a share, and the stock plunged. Shares of
were also pummeled after the firm reported quarterly results that underwhelmed investors.
Of course, corporate results from
and a host of others have been more upbeat, and there's no denying that profits have been very good on the whole this quarter. But Chuck Hill, director of research at First Call, notes that the quality of earnings has been somewhat questionable.
Apple, for example, said it earned 12 cents in the quarter, but when one-time gains and an accounting adjustment are backed out, the firm posted a profit of just 8 cents a share.
"The good third-quarter earnings growth is helped by some companies pushing the envelope on adjusting the GAAP earnings to a basis that excludes nonrecurring and/or nonoperating items," said Chuck Hill, director of research at First Call.
Other analysts fear that earnings have been boosted by tax breaks and cost-cutting that won't spill over into 2004. "Results for the third quarter have been quite encouraging," said Bear Stearns chief investment strategist Francois Trahan. "That said, the road ahead will likely bring a slowdown in earnings momentum, albeit from high levels."