In this case 13 would be quite a lucky number

March 31, 2009
Wall Street Journal
By Jeff P. Opdyke

Tuesday ends 2009's first quarter. And while corporate earnings will likely prove better than that disaster of a fourth quarter last year, "better" is a relative word.

The $13 a share analysts expect the S&P 500 constituent companies will have earned when the quarter's operating profits are fully tallied is nearly 22% worse than reported results a year earlier. It is 42% worse than reported results from the same period in 2007, before the known financial universe imploded.

The question, though, is whether $13 is wishful thinking.

"It's a leap of faith to expect a material bounce-back [in profits], given the shape of the economy in the first quarter," says David Rosenberg, chief North American economist at Banc of America Securities-Merrill Lynch. He thinks $13 will prove too high.

Consider the ratio of companies preannouncing weaker results to those preannouncing stronger results: it is double normal levels, and at its highest reading since 2001, according to Thomson Reuters, though that partly stems from fewer companies offering positive guidance nowadays.

Nevertheless, companies including Xerox and steelmaker Nucor have warned Wall Street that analysts' projections for the calendar first quarter are too high. Financials may disappoint. Citigroup and J.P. Morgan Chase said they were profitable in January and February, raising market hopes about the sector. But worries have emerged that business was worse for financials in March.

John Butters, director of U.S. earnings research at Thomson Reuters, expects negative preannouncements to "spike before companies begin reporting results." That doesn't bode well for $13 a share.