Apple Juices Sluggish Q1 Corporate Earnings Forecasts

By KEVIN HARLIN, INVESTOR'S BUSINESS DAILY

Posted 04/05/2012 04:02 PM ET

Slow international growth and stubbornly high commodity prices are expected to keep a lid on corporate earnings growth for a second straight quarter.
Analysts now see 3.2% Q1 profit growth from S&P 500 firms, according to Thomson Reuters data. That's down from 5.5% on Jan. 1 and hopes for 12.8% six months before that. Exclude Apple (AAPL), and profit may rise just 1.8%.
"The bar for Q1 is set pretty low," said Jeremy Zirin, UBS Wealth Management's chief equity strategist.

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Ongoing sluggishness in Europe and a lower growth target in China are pressuring margins for global industrial and materials companies, Zirin says.
There were still some easier comparisons last year, Lawrence Creatura, a portfolio manager at Federated Investors, said. "That's not the case this year, and earnings growth is going to be tough to come by," he said.
Q4 earnings rose 9.2%, the first single-digit rate in two years, and the lowest since corporate America vaulted out of the recession. Without Apple — which more than doubled its massive profit — earnings growth was just 6.2%.
Overall, S&P 500 technology companies are expected to report 6.3% earnings growth, one of just two sectors that have seen Q1 forecasts raised from Jan. 1, according to Thomson Reuters. Backing out Apple, which reports April 24, the tech earnings estimate is for a 1.6% decline.
That's overly pessimistic, Zirin says, given the rapid adoption of smartphones, tablets and cloud computing, and nearly insatiable hunger for more bandwidth.
S&P 500 industrials earnings likely rose 10.6%, with consumer discretionary firms up 6.6%.
About 5% of the S&P 500 have already posted Q1 results, but the unofficial season opener comes Tuesday with aluminum giant Alcoa (AA). Internet search giant Google (GOOG) reports Thursday.
A slew of financials follow, with JPMorgan Chase (JPM) and Wells Fargo (WFC) out next Friday, Citigroup (C) reporting April 16 and Bank of America (BAC) April 19.
Analysts expect 6.5% earnings growth from the financial sector, down from 7.3% on Jan. 1.
Financials and consumer discretionary stocks likely did well in Q1, Zirin says, thanks to some modestly positive U.S. job gains and housing market recovery.
Analysts typically start with high hopes, only to lower expectations as results near. Q1 views came down more than usual, says Greg Harrison, a corporate earnings research analyst with Thomson Reuters.
Companies too will lower the bar, allowing them to post upside surprises. But a below-average 62% of S&P 500 firms beat in Q4.
"Costs are going up for a lot of companies, as far as commodities and other inputs go, so that's putting the squeeze on earnings growth," said Harrison.
Earnings growth is expected to pick up later this year in part on hopes of easing commodity costs. Company guidance could quash that enthusiasm.
"Forward-looking guidance has been fairly cautious," Zirin said. "That will likely be a continuing theme."
But results so far give some reason for optimism, Harrison says. About 75% have beaten analysts' modest expectations. Early reports usually set the tone for the rest of the season, he says.