Bracing for 2009 Earnings - Barron's

Prepare to see the worst corporate earnings in over fifty years, warns Barron's Jacqueline Doherty, and get ready to wait until the second half of 2009 for an earnings recovery.

Analysts believe corporate earnings will fall 15.5% in Q1 2009 vs. Q1 2008, and will fall 14.3% in Q2 Y/Y. If the analysts are correct, that would bring the total earnings decline to 35% since the profit peak of mid-2007, nearly twice the average peak-to-trough fall of 18%.

Early Q4 earnings reports failed to inspire: JPMorgan (JPM) would have posted an operating loss if not for recently acquired WaMu, Alcoa (AA) lost $1.19B, Intel's (INTC) Q4 profit dropped 90%, and Nvidia (NVDA) and Liz Claiborne (LIZ) both warned investors of bigger-than-forecast losses.

Sectors that could see major losses include materials (-71% consensus), consumer-discretionary companies (-60% consensus), tech firms (-19% consensus) and industrial and energy companies (-21% consensus).

Bottom-up analysts may not have cut their earnings estimates far enough yet. They expect the S&P 500 to post combined earnings of $74.10/share this year vs. top-down analysts who expect just $62.73.

The good news is that the decline has to stop sometime. Analysts see a levelling off in Q3 followed by a 37% jump in Q4. Note, though, that the improvement is based on comparing earnings to a horrid 2008 and not a recovered economy. Even so, stocks have to recover sometime and could get a decent boost during the summer.

Comments

[CautiousInv...:]

Many analysts have been out of touch with the severity of this contraction and its impact on corporate earnings.

Some earlier estimates for the SP500 were simply silly.

With all of the unknowns, I believe it is impossible to reliably predict when this mess will turn around.

Once the finanacial crisis is put to rest, the recession will need to be dealt with and this where the the next stimulus package will be of critical importance.

Jan 18 09:35 AM

[wdzk:]

Funding a bank or other institutions will not generate a recovery in the overall economy which is at large a consumer based economy. No top down stimulous will provide any flow of funds through the economy. Only a bottom teir stimulous will help and provide currency flow within the retail and mortgage sectors.

Jan 18 10:18 AM

[Sentinel:]

Most banks are insolvent or close to it. The TARP is just a way to keep each one that blows up running from month to month until the crisis subsides.

Unforturnately, you have 100's of trillions of dollars of evaporated paper assest based on derivitives. Even if 5% were actually real (that number is in reality way low, but bear with me) then you still have dozens of trillions of dollars of real wealth gone.

The top twenty banks alone have only about 11 trillion dollars in listed assets. And a lot of that is based on worthless paper.

Simple.....most banks are insolvent. And the ones that are not soon will be when loan losses generated just from the downturn in the economy come to full bloom.

Nationalization of banks is only a quarter or two away.

Jan 18 11:25 AM

[Sentinel:]

Oh...if you don't believe me about the insolvency of banks just go to these two links......

www.nakedcapitalism.co...

itulip.com/forums/show...

Or just wait for the best truthteller of all......

Time.

Jan 18 11:45 AM

[Periphanto:]

<Prepare to see the worst corporate earnings in over fifty years>

In 50 years boarders of many countries will be redrawn!

Jan 18 02:59 PM

[bc818:]

Earnings season will be a disaster that's for sure. Keep an eye on Apple on Wed because they may be the only company to beat estimates. Not only do i think they will beat estimates, they're going to crush them. What were the top 5 xmas gifts this year? I bet Apple had 1-2 of them. The app store is complete margin for Apple and they're growing exponentially as developers realize they can make a ton of cash with little effort. All of the retailors are having huge sales cutting into their margins...Apple no discounts because they dont need them...

Jan 18 03:50 PM

[John Lounsbury:]

Rachael - - -

You quote Barrons as estimating 2009 earnings for the S&P 500 from two sources as $74.10 and $62.73. I have been reading estimates in the 40's in other sources. Can you explain the differences? Are some excluding one-time charges and the lower estimates including them?

Jan 18 07:42 PM

[Did U Think...:]

"The good news is that the decline has to stop sometime. "
Let's not forget that the Dow feww 89% 1929-1932. So while, yes, the decline has to stop sometime, what makes you think it won't stop at 1500 (would be about a 90% drop from the 14k peak) thus matching the crash of 1929. The economic situation is actually a lot worse this time around. America and Americans have lots more debt, and the credit bubble was blown a lot bigger than it was back during the great one. We were a manufacturing economy back then and now we are a declining services economy. We were the biggest creditor back then and now we are the largest debtor.

Forget the happy talk about a 2nd half recovery. We might get a sucker's rally here and there but recovery is not going to occur until home prices stabilize and the housing futures are indicating that will not happen until at least mid 2010 or even 2011.

What if they gave a stock market crash and nobody came? Get to cash ASAP and wait for the crash and you will have cash at the bottom to buy stuff cheap when everyone else is wiped out.

Jan 19 01:54 PM