Analysis: Investors brace for shaky U.S. earnings season

Sun Jul 8, 2012 11:57am EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - Earnings season begins on Monday with U.S. companies facing a litany of issues that could make second-quarter reports look dismal.

Corporate outlooks are at their most negative in nearly four years and companies that have already reported have shown lackluster growth. Nearly two dozen S&P firms have already cited Europe's woes - which seem to be worsening - as a concern.

In addition, more than 85 members of the Standard & Poor's 500 .SPX lowered expectations in the last several weeks and the quarter's expected earnings growth of 5.8 percent is entirely due to Apple Inc (AAPL.O: Quote) and a big earnings gain for Bank of America Corp (BAC.N: Quote) due to a mortgage settlement last year.

The majority of S&P 500 results will be in the next four weeks, beginning with aluminum company Alcoa Inc (AA.N: Quote), due to report following Monday's close.

The primary worry is whether the effect from Europe, along with the emerging slowdown in China, has been factored in to analyst estimates, which are down sharply since April.

"It's natural to expect that somehow the U.S. corporate sector, which has been a bright spot in this recovery, is not going to emerge unscathed," said Brian Gendreau, market strategist with Cetera Financial Group in Florida.

Europe accounts for about 15 percent of S&P 500 sales. Since the beginning of April, just two sectors have shown an increase in growth forecasts. One is telecommunications, which has no sales exposure to Europe, according to a Bank of America/Merrill Lynch research note.

The other is technology, which has the highest exposure at about 25 percent. But much of that sector's earnings growth will come from Apple. Without Apple, tech-sector growth is estimated at 3.1 percent, compared with 7.9 percent with Apple included, according to Thomson Reuters data.   Continued...