ByWILL SWARTSROB WHERRY
When it comes to figuring out where the economy and the stock market are headed, there s no shortage of broad statistics and surveys to track from the consumer confidence index and housing starts to the quarterly gross domestic product results. But some of the most telling numbers are often found much closer to the ground: buried inside the performance results of individual companies.
So if you re looking to read the tea leaves on the economy s outlook, it s worth looking closely at those corporate financials. And this being earnings season, there are plenty to choose from.
Of course, nobody was predicting companies would hit it out of the park this time around. Coming into earning seasons the stock market was showing signs of a rally. But that was due more to government bailout plans, a change in mark-to-market accounting and some aggressive bargain hunting than anything to do with earnings. Indeed, earnings for the S&P 500 are forecast to drop almost 40%, according to Thomson Reuters. If that happens it would mark the seventh straight quarter of negative gains.
Nevertheless, as the numbers trickle in there are some hopeful signs for investors to grab on to -- and some that indicate tough times may still hit in the summer and fall. One hot spot: Banks. Several revealed surprising earnings that caught the Street off guard. "We were focusing on the ability of banks to validate the claims they made earlier in the year that they had a profitable first quarter," says Jeff Layman, chief investment officer of BKD Wealth Advisors in Springfield, Mo. "By and large they have validated those claims. I don't know if it's smooth sailing yet. But it s a positive."
With that in mind, we culled through the earnings announcements of seven bellwethers to find the important trends that could impact your investment portfolio in 2009 -- and probably well into 2010, too.
If you re counting on big spenders to jump-start the recovery, don t get your hopes up at least, not based on how they re using their Platinum cards.
(
) said it saw a 16% decrease in customer purchases during its first quarter. That led to net income of $437 million, a 56% drop. The cutback in spending trickled down to high-end retailers, too.
(
) posted a 29% profit decrease (although that exceeded Street expectations). So will the wealthy soon return to their free-wheeling ways? Doubtful. AmEx also set aside $1.8 billion to cover additional credit losses.
While the wealthy may be pulling out their American Express cards less frequently, many consumers are turning to fast food to get value for their meal money.
(
) has benefitted from that change in habits. The company said it made 87 cents a share during its last quarter on a slight dip in revenue vs. 81 cents last year. Although this trend will probably continue, cash-strapped consumers can be finicky about where they eat, too. While McD's was able to overcome currency headwinds and slow sales,
(
), home to Pizza Hut and KFC, and
(
), weren't able to avoid those obstacles.
When businesses spend on technology it s a good sign. In mid-March
(
) announced earnings per share of 26 cents, up 3% from last year. Of course, Oracle customers could be driven by a cost-cutting mentality. Nevertheless, it shows CEOs are optimistic enough about the future to open their check books. What s more, Oracle isn t afraid to spend some of its own cash. It recently paid $7.4 billion for
(
) after IBM failed to buy the firm. Oracle has been quietly leading a rally in the tech sector. The stock is up 30% since its earnings announcement. Meanwhile, the tech-heavy Nasdaq is up 8% on the year.
When this bank preannounced a record $3 billion quarterly profit on April 9 it not only boosted the company's fortunes -- shares rose almost 25% -- it also ignited thinking the worst might be over for this sector. That was backed up by rosy earnings from other institutions like
(
). "WFC ... demonstrated both its ability to produce earnings and the benefits from the Wachovia merger," said Keefe, Bruyette & Woods analyst Frederick Cannon. But investors shouldn t get too excited just yet. The government released the results of its so-called "stress tests" to banks Friday. The public will get a glimpse May 4.
Goldman Sachs (GS)
Big Brown is the shipper of choice for many of the world s companies. So when its planes aren t filled with packages investors use that as a barometer for the health of the global economy (which doesn t look very healthy at all). The company's recent results show the downturn that started in the U.S. has spread across the world.
(
) made 40 cents a share on $10.9 billion revenue, down from 87 cents and $12.7 billion last year, as international shipping decreased. It also forecasted weak second-quarter earnings. "Economic indicators tell us recovery might begin late this year, but more likely not until 2010," said Chief Financial Officer Kurt Kuehn.
UPS (UPS)
Many investors believe the broad economy won't recover until the housing industry does. That may be sooner than people think. The Commerce Department said on Friday new home sales jumped in February and were flat in March, leading some to believe a bottom is forming. Home builders in general have been hoping for a turnaround. But
(
) may be the biggest beneficiary of any bounce. On April 8 it announced a $3.1 billion merger with
(
), creating the nation's largest home builder. The merger "will allow Pulte to sell a product that is less expensive and smaller," said David Urani, an analyst with Wall Street Strategies.
It was just two years ago when companies that sold their goods overseas where getting a big bounce out of the currency conversion once that sale was made. That party is over now that the rest of the world is experiencing America s woes. As the dollar strengthens against foreign currencies it's having the opposite effect on the earnings of companies that make everything from heavy machinery to office copiers.
(
) said sales during the recently closed quarter dropped 18%, down almost one-fifth from a year ago, to $3.55 billion. About one-third of the drop was due to weaker foreign sales squeezed by the stronger dollar.
Xerox (XRX)
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