Analysis: Economic pain takes toll on U.S. earnings forecasts

Sun Jun 3, 2012 8:04am EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - Expectations for U.S. corporate earnings are deflating fast as the euro zone crisis deepens and economic data around the world disappoints.

Standard & Poor's 500 earnings for the second quarter are now forecast to grow 7.4 percent, down from an early January forecast of 10.1 percent, according to Thomson Reuters data.

But remove profits-generating machine Apple Inc (AAPL.O: Quote) and the financial sector .GSPF, which has weak year-ago comparisons, from the numbers and the forecast looks much worse. After those exclusions, the rest of the index is expected to report a 0.9 percent drop in second-quarter profits.

Most S&P 500 sectors have seen estimates fall since January, with energy, materials and utilities all expected to see profit declines from a year ago, while telecommunications and healthcare profits are barely rising.

"Those responsible for giving guidance, they have to be worried about the economy right now, the worldwide economy," said Kenneth Naehu, a managing director at Bel Air Investment Advisors in Los Angeles, which manages about $6.5 billion. "Fear is embedded in the marketplace."

The world's economic outlook darkened on Friday as reports showed U.S. employment growth slowing sharply, Chinese factory output barely growing and European manufacturing falling deeper into malaise.

Investors stampeded to safe-haven U.S. and German government bonds amid growing worries over Spain's parlous finances and debt-stricken Greece's uncertain future in the single currency area, concerns that were compounded by weak U.S. jobs data.

About 47 percent of S&P 500 sales come from abroad and a little over 14 percent are derived from Europe, according to S&P data.   Continued...