What to Watch in the Week Ahead and on Monday, Jan 25

Fri Jan 22, 2016 3:35pm EST
 
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WEEK AHEAD

With the markets having calmed down a bit and stocks rallying a little, the focus shifts to
quarterly corporate results: a slew of companies are due to report next week, including about
130 S&P 500 components. Earnings expectations have been declining, but the market's lousy
performance of late and investors' diminished expectations may produce some surprises to the
upside here and there. The big names include Apple, Amazon, Johnson & Johnson, Chevron and Visa.
Investors will also be looking at U.S. Federal Reserve's Federal Open Market Committee two-day
meeting on interest rates beginning on Tuesday.
    
All eyes are on the fourth-quarter gross domestic product report on Friday, which is expected to
confirm that economic growth braked sharply from the third quarter's 2.0 percent annual pace.
According to a Reuters survey of economists, GDP growth likely slowed to a 0.8 percent rate on
average. Estimates range from as low as 0.1 percent to as high as 1.1 percent. Other data on tap
during the busy week include housing, manufacturing, consumer confidence and wage growth.
Reports on Tuesday are likely to show solid gains in house prices in November, with the S&P/Case
Shiller house price index forecast rising 5.7 percent in the year to November after increasing
5.5 percent in October. The Conference Board is expected to report its consumer confidence index
at an unchanged 96.5 in January despite a massive stock market selloff. On Wednesday, the
Commerce Department is expected to report that new home sales increased 2 percent to a
500,000-unit pace in December, which would offer more evidence that the housing market recovery
remains intact despite the slowing economy and stock market rout. Durable goods orders are
forecast to have dropped 0.3 percent in December after being unchanged in November. Core capital
goods orders are also expected to have declined 0.3 percent after a similar fall in November. On
Friday, the Labor Department is expected to report that its employment cost index rose 0.6
percent in the fourth quarter after a similar gain in the third quarter.

Apple Inc is expected to report first-quarter revenue slightly below estimates for the first
time in six quarters, according to Thomson Reuters StarMine. The company has been facing
well-documented issues around softer demand for iPhone 6 and iPhone 6S. Warnings from Apple
suppliers like Cirrus Logic, Jabil Circuit and Qorvo have sparked concerns about slowing
shipments. Results of the world's most valuable company by market value are slated on Tuesday.
Investors will be looking for clarity around reports that the company will cut output of the
iPhone models by about 30 percent for the March quarter. Chief Executive Tim Cook's comments
about China, which the company counts as one its biggest markets, will also be on focus.

Microsoft Corp is expected to report second-quarter revenue slightly above analysts' average
estimate on Thursday. Under Chief Executive Satya Nadella, the company has been shifting its
focus to software and cloud services as demand for the Windows operating system slows. The
company has also been cutting costs and streamlining its operations to focus on more lucrative
businesses. Investor will look for the magnitude of impact from the weakness in PC market and a
strong dollar.

Johnson & Johnson is expected to report lower fourth-quarter revenue, hurt by a stronger dollar.
Weak sales of medical devices and consumer products are expected to weigh on results expected on
Tuesday. The company recently said it would cut 3,000 jobs over the next two years in its
struggling medical devices business, with the hope of achieving up to $1 billion in annual cost
savings. 

Facebook reports fourth-quarter earnings on Wednesday and is expected to fare slightly above
consensus, according to Thomson Reuters StarMine. Facebook reported a surprisingly strong profit
growth last quarter, helped by a spike in mobile users and advertising. The company has been
spending aggressively on hiring and building data centers. Analysts have said the growth in
video views presents the most significant near-term opportunity for Facebook as it looks to grab
a bigger slice of the TV advertising market.

Ecommerce company Amazon.com Inc is expected to report fourth-quarter revenue slightly above
analysts' estimate on Thursday, according to Thomson Reuters StarMine. The beat, which will be
the fourth in a row, piggybacks on strong holiday sales that are expected to have garnered an
estimated 43 percent of all online sales in November and December, according to research firm
Slice Intelligence. The company, which has struggled with profitability while spending to expand
beyond its core online marketplace offerings, is also expected to report a profit for the third
straight quarter as it continues to cut costs. Analysts estimate Amazon Web Services, the
company's cloud computing business, to post as much as 70 percent revenue growth as it continues
to add customers.

AT&T, the No. 2 U.S. wireless carrier and the world's largest pay-TV operator, is expected to
report fourth-quarter earnings slightly above analysts' average estimate, according to Thomson
Reuters StarMine. As the U.S. wireless market stagnates, AT&T is seeking new revenue streams and
betting on DirecTV's satellite TV business to help beef up its bundles of cellular, broadband,
TV and fixed-line phone services. When it reports earnings on Tuesday, investors will focus on
2016 forecast and progress on integration of DirecTV it bought in July.

Procter & Gamble Co is expected to report second-quarter sales above analysts' average estimate,
according to Thomson Reuters StarMine. A stronger dollar has crimped the value of sales from
overseas markets. The company missed out on key trends in important markets like China and India
due to a very centralized organizational structure. P&G has been downsizing its product
portfolio to concentrate on higher-margin brands, a move that analysts and investors have
lauded. The company, which reports on Tuesday, said it expected organic sales to grow from the
latest quarter. 

Time Warner Cable Inc is expected to report Q4 revenue and profit below the average analysts'
estimates on Thursday. The company, which is being bought by Charter Communications in a $56
billion deal announced in May, is under pressure from shareholders to sell or spin off HBO.
Investors will be looking for updates on the closing of the Charter deal and also if the company
is capable of stemming an exodus of net video subscribers.

Eli Lilly and Co is likely to report fourth-quarter revenue in line with expectations, according
to Thomson Reuters StaMine. The drugmaker said earlier in the month that its Jardiance diabetes
treatment grabbed market share during the fourth quarter even as it forecast 2016 revenue below
expectations. Lilly, which is due to report on Thursday, has been struggling with declining
sales and earnings since 2011 after sales of its biggest products plunged due to competition
from cheaper generics.

Boeing posts Q4 results, the first annual tally under CEO Dennis Muilenburg. Analysts and
investors will look for evidence that Boeing's 787 production started generating cash flow in
the fourth quarter and will examine prospects for the declining defense businesses when the
company reports on Wednesday. There's also speculation that Boeing may take an accounting charge
for the production cost of the 787 or the 747.

Chemical company Dupont, which is merging with rival Dow Chemical, is expected to report a fall
in fourth-quarter profit, hurt by weak earnings from its farm segment. Falling prices for seeds,
especially corn, has weighed on the business for more than a year now. Investors will be keen to
learn more about the company's outlook for its agriculture business and non-farm demand from
China. Details about the pending merger and the impact of a strengthening dollar are also on the
agenda when the company releases results on Tuesday.

Ford Motor Co is expected to report record pre-tax profits for 2015, excluding one-time items,
on Thursday. Investors will focus on the automaker's projections for 2016, looking for any
change from the outlook company executives presented Jan. 12 that 2016 pre-tax profits would be
"at least as high" as last year. Ford said it expects higher costs in North America and
cautioned that it could be difficult to expand North American operating margins, projected at
9.5 percent "or better" for 2016.

Cessna jet maker Textron Inc is expected to report a rise in its revenue and profit in the
fourth quarter on Wednesday. Also slated to report fourth-quarter results same day is United
Technologies, the maker of Pratt & Whitney aircraft engines. 

Qualcomm is expected to report first-quarter profit above analysts' expectations, according to
Thomson Reuters StarMine. The company said it would not break itself up after it delivered its
fourth profit warning in November. The chipmaker, which faces intense competition from Taiwanese
and Chinese companies, said its agreements with two major Chinese customers were taking longer
than anticipated. Investors will look for indications about the state of the chipset business as
well as commentary on cost control in the face of tough competition when it reports results on
Wednesday. 

Visa Inc is expected to report a jump in first-quarter earnings on Thursday, boosted by higher
volumes. However, some analysts have expressed concerns that Visa, which gets a large chunk of
revenue from outside the United States, could take a blow from the quarter's strong dollar and 
falling oil prices. According to some analysts, Mastercard's entry into China could push costs
up during the period, and will continue to do so for the year.

AbbVie Inc is expected to report fourth-quarter profit and revenue above Wall Street estimates
on Friday, according to Thomson Reuters Starmine. The company, which in October forecast
double-digit EPS growth through 2020, had some good news earlier this month when U.S. patent
officials denied Amgen's efforts to market a biosimilar version of its drug Humira; which is
considered the world's top-selling prescription medicine. Investors will be looking for
additional color on other patent challenges and biosimilar developers, and also how the
FDA-mandated potential liver injury warning on AbbVie's hepatitis C drugs have impacted sales. 

On Friday, the maker of aircraft parts and climate control systems Honeywell International Inc
is expected to report a higher fourth-quarter profit helped by cost controls. The company, which
counts Boeing Co and Bombardier Inc among its customers, has cut jobs and sold or merged
businesses to reduce costs. Strong dollar and weak demand from oil and gas customers could
affect revenue. 

Colgate Palmolive Co is grappling with a strong dollar that has reduced the value of sales from
overseas. Colgate, which gets about 66 percent of sales from outside North America, has raised
prices in markets like Latin America and Africa to cushion the impact of the dollar. However,
unit volume in these regions have reduced as an effect. The company cut its full-year profit
forecast in October to reflect the changes in foreign exchange rates, which generally have a
double-digit impact on total sales. Investors will look out for any updates to the forecast and
whether the company has other plans to offset the impact of currency when it reports fourth
quarter earnings on Friday.

Payments network operator Mastercard Inc is expected to report a fall in fourth-quarter profit,
hurt by a strong dollar, as markets outside the United States account for nearly 60 percent of
its purchase volumes. Mastercard said in September it expected operating expenses for 2015 to
grow in high single digits due to ramping China investments and continued digital-related
spending. The investors will look for the company's update on gas prices, foreign exchange
headwinds and rebates when it publishes results on Friday.

Data storage giant EMC, which is in the process of being acquired by Dell, is expected to post
fourth-quarter revenue in line with market estimates, according to StarMine. EMC has seen
dwindling foreign sales as a result of the stronger dollar and weakness in the large markets of
Asia-Pacific and Latin America. Investors will watch out for the company's forecast for 2016 as
well as updates on the structure of the proposed buyout by Dell when it posts earnings on
Wednesday. 

PayPal Holdings Inc is expected to report a fourth-quarter profit in line with analysts'
estimate, according to Thomson Reuters StarMine, as the payments company continues to struggle
with fierce competition from Stripe and Square Inc. Investors remain on the fence about PayPal's
customer base. However, analysts expect some upside to revenue from PayPal's partnership with
Macy's and are looking for an update on a potential agreement with Visa Inc when the company
reports on Wednesday.

On Wednesday, e-commerce company eBay is expected to report fourth-quarter profit and revenue
slightly above market estimates, according to Thomson Reuters StarMine. Ebay, which raised its
full-year earnings forecast in October, also posted a strong profit last quarter that helped
allay concerns about its post-Paypal prospects. Investors will want to see if eBay has sustained
that momentum in the fourth quarter as well, in terms of gross merchandise volume and new active
buyers as well.
    
Abbott Laboratories Inc is expected to report fourth-quarter profit and revenue just below
estimates, according to Thomson Reuters StarMine, as it continues to remodel itself following
the spinoff of AbbVie in 2013. Investors will be looking for more color on the likely trajectory
of emerging markets sales, which accounts for more than half its revenue and potential M&A when
the drugmaker reports on Thursday.

AIG is under tremendous pressure from shareholders, including activist investor Carl Icahn, to
address concerns about its structure, leadership and cost management as rock-bottom insurance
rates batter its underwriting operations. The No. 1 U.S. commercial insurer's strategic update
on Tuesday comes amid mounting tensions between AIG Chief Executive Peter Hancock and Icahn over
the billionaire's suggestion in October that the company should split into three - an idea
Hancock promptly rebuffed. AIG's last strategic announcement in December saw four top-level
executives, including its CFO, leaving the company - a move some analysts think was in response
to Icahn's criticisms.

Amid sliding prices of fertilizers, Potash Corp reports fourth-quarter results and offers
guidance for the year ahead on Thursday. Comments on company's expectations for a supply
contract with Chinese buyers, which usually sets a global price floor, will be keenly watched.

American Airlines Group Inc, the world's largest airline, reports its fourth-quarter results and
guidance for early 2016 on Friday. The airline is expected to discuss its decision to write off
half a billion dollars of revenue trapped in Venezuela due to currency controls there, as well
as increased competition in Latin America from its U.S. rivals.

Canadian National, Canada's largest rail company, is expected to announce an improved operating
ratio during the last three months of 2015, benefiting from cheaper oil and the weakening
Canadian dollar, despite lackluster volumes due to lower bulk shipments. The company is due to
report fourth-quarter earnings on Tuesday.

Heart device maker St Jude will report Q4 results short of Wall Street expectations on
Wednesday, according to Thomson Reuters StarMine. The company, which reported preliminary
results earlier this month, has been seeing lower sales in its cardiac rhythm management
business which sells pacemakers and heart failure monitoring systems. The company has said these
pressures were partially offset by growth in its neuromodulation business and strong sales from
its recent Thoratec acquisition.

On Tuesday, Coach Inc is expected to report second-quarter sales above the average analyst
estimate, according to StarMine. The handbag maker has been revamping its products under design
chief Stuart Vevers, a move that helped the company beat the odds of a dull handbag market last
quarter. Analysts have lauded Coach's strategies that included a reduction in promotional
cadence in an over-distributed market. A Cowen-Sahler Research showed that while sales growth in
the handbag market continues to be subdued, Coach was the most favored brand. 

Corning Inc, which supplies Gorilla Glass to Apple, is likely to report fourth-quarter revenue
slightly below analysts' average estimate, according to Thomson Reuters data. The company, which
posts results on Tuesday, could take a negative impact from weakening global economy and a
strong U.S. dollar. While Corning is best known for the hardy scratch-resistant Gorilla Glass
used in smartphones, a majority of its revenue comes from making LCDs and other displays for
TVs.

3M Co, the maker of Scotch tape and Post-it notes, is expected to report lower fourth-quarter
revenue on Tuesday, hurt by a strong dollar and a global economic slowdown. The company, which
gets more than 60 percent of revenue from outside the United States, had cut its 2015 profit
outlook in December, and forecast 2016 earnings below the average analyst estimate. 

Software maker VMware is expected to post fourth-quarter profit and revenue in line with market
estimates on Tuesday, according to Thomson Reuters Starmine. The company which makes cloud and
virtualization software, lowered its revenue forecast and had warned in October that it would
take a hit by softer bookings due to weak demand from China, Russia and Brazil. Investors will
watch out for updates on company's 2016 outlook and how VMware will be structured within parent
EMC following Dell's purchase of EMC.

On Wednesday, Factory automation systems maker Rockwell Automation is expected to report lower
first-quarter sales and profit hurt by slowing industrial production growth in the energy and
mining sectors. Rockwell, which gets nearly half of its annual revenue from outside the United
States, also forecast 2016 sales and profit below the average analyst estimates, citing
continued weakness in emerging markets. 

Norfolk Southern, the No. 4 U.S. railroad, faces a double dilemma as it reports fourth-quarter
results on Wednesday. On the one hand, it is struggling to cope with a freight recession and the
risk of an industrial recession that threatens the continent's manufacturers. On the other, it
is in the middle of a takeover challenge from Canadian Pacific. Investors will be looking for
commentary on what the company is doing to successfully manage through the freight downturn and
why it presents a better prospect for shareholders as a standalone company.

Thursday will see oilfield services provider Baker Hughes, which is awaiting regulatory approval
for its merger with bigger rival Halliburton, report a fourth-quarter loss compared with a
year-ago profit. The company is struggling to cope with a steep fall in drilling activity,
caused by persistently low crude prices.

Sports and athletic apparel maker Under Armour Inc is expected to report fourth-quarter profit
below analysts' estimates, according to Thomson Reuters StarMine. While Under Armour's sales are
estimated to rise more than 20 percent, the company expects the strong dollar, higher costs and
spending to hurt gross margins in the fourth quarter. The company has spent close to $1 billion
on its fitness and activity-tracking platforms, and is spending on marketing and reducing
turnaround times for its merchandise. 

Johnson Controls Inc which makes automotive batteries and heating and ventilation equipment, is
due to report first quarter results on Thursday. The company marks another quarter closer to the
spin-off of its automotive seating and interiors business which occurs in October. JCI will take
about a half a billion dollars expense this year as it spins off most of its automotive
ventures.

Hershey Co is likely to report sales below analysts' average estimate, according to Thomson
Reuters StarMine. The company, due to report results on Thursday, was forced to reduce its sales
forecast for the year five times due to weak demand in North America and slow growth in China.
Hershey's China business may have worsened in the quarter while response to new products such as
Hershey Caramels and Ice Breakers Cool Blasts in the domestic market has also not been as robust
as expected by the company.

Harman International Industries Inc, the maker of JBL and Harman Kardon audio systems, is
expected to report a second-quarter profit above average analysts' estimate, according to
Thomson Reuters StarMine data. The company has benefited from strong demand from automakers for
its "connected cars" products.  Harman, earlier this month, agreed to buy Israeli-founded cyber
defense start-up TowerSec to boost security of its offerings designed for connected vehicles.
Investors will be looking for impact of Volkswagen AG's emission scandal on Harman when it post
results on Thursday. 

HCA Holdings Inc, the largest for-profit U.S. hospital operator, is likely to report
better-than-expected earnings, helped by greater patient volumes and improved expense control.
The company, due to report results on Thursday, expects the Affordable Care Act to drive more
growth in 2016 as Americans sign up for insurance coverage through exchanges created under the
law.

The video game maker Electronic Arts is expected to report third-quarter revenue and profit
above expectations, according to Thomson Reuters StarMine. EA is expected to benefit from strong
digital sales of its "Star Wars Battlefront" videogame, which it released in November after
three years of development. Despite receiving lukewarm reviews, the game is expected to be a
commercial hit, drafting off the success of the Star Wars movie. When the company reports on
Thursday, investors and analysts will look for comments whether the company will raise or cut
its estimate of selling 13 million units of the game for the fiscal year. 

Xerox Corp, best known for its printers and copiers, is set to report fourth quarter results
below estimates; for the ninth straight quarter as corporate customers cut printing costs and
consumers shift to mobile devices. Xerox, which has lost more than a third of its market
valuation in the last one year, said in October that it would review its businesses and capital
allocation options, but was not currently considering a sale of the company. Activist investor
Carl Icahn disclosed a stake in the company and said he would look to get board representation
and pursue strategic alternatives. Analysts will be looking for further details on the
restructuring and any outlook when it reports earnings on Friday.

On Tuesday, U.S. diversified miner and oil producer Freeport-McMoRan is expected to post a
fourth quarter loss, hurt by weakening metals and oil prices. Freeport has had a turbulent
quarter, during which co-founder James Moffett stepped down and the company suspended its annual
dividend and lowered its capital spending. The company came under the scrutiny of activist
investor Carl Icahn last August, who criticized the company's spending and capital structure in
light of its massive debt. Investors will be looking at Freeport's ability to raise funds
through the potential sale of minority interests in certain mining assets, even as uncertainty
hovers over its plan to divest its Indonesian unit.
    
The main economic report for Canada next week will be monthly gross domestic product. Canada's
economy is expected to have grown by 0.2 percent in November, underscoring expectations that the
fourth quarter was likely weak at best. The Bank of Canada recently forecast that the economy
likely stalled in the fourth quarter, not long after the country emerged from the mild recession
it saw in the first half of 2015. A report on producer prices will also be released on Friday,
which is forecast to show a 0.2 percent decline in December.

On Tuesday, Mexico retail sales for November will be published, after sales rose 0.3 percent in
October. On Wednesday data will show how the trade balance fared in December, after factory
exports slumped in November by thee most in three months. On Friday December's fiscal balance
will be released and the national statistics institute's new preliminary growth estimate for the
fourth quarter. 
    
ON MONDAY

Fast food giant McDonald's Corp is likely to report fourth-quarter sales above analysts' average
estimate, according to Thomson Reuters StarMine. The company's all-day breakfast is expected to
have lifted U.S. sales and the company is likely to report a second straight quarter of positive
same-store sales for the market after two years of no growth. The company announced plans in
November for luring back diners, cutting more costs, shifting restaurant ownership to
franchisees and returning more cash to investors. Investors will be interested in the
performance of the "Mc Pick 2" deal, that lets customers order two items for $2 launched this
month, and a likely sale of a portion of McDonald's stake in its Japan business.

Halliburton, the world's No.2 oilfield services provider, is expected to post a steep fall in
fourth-quarter profit, hurt by lower drilling activity as oil producers slash their capital
budgets. Halliburton is waiting for regulatory approval for the takeover of smaller rival Baker
Hughes. The merger, announced in 2014, was originally expected to close in November 2015, but
Halliburton now expects the deal to close in 2016. Bigger rival Schlumberger posted a slightly
better-than-expected quarterly profit, but warned it may miss analysts' profit expectations in
the first quarter.    
    
Helped by higher home sales, the no.1 U.S. homebuilder D.R. Horton Inc is expected to report a
rise in its first-quarter revenue and profit. However, investors would want to see whether the
homebuilder could cope with the impact of an industry-wide labor shortage and whether it could
offset labor costs with its sales prices. Also, the homebuilder's home deliveries may get
impacted by unfavorable weather in the Southern United States during the quarter.

The national statistics institute of Mexico will release unemployment data for December, after
the gauge fell to a seven year low the prior month. Also, economic activity data for November
will be released, after it notched its weakest showing since July the prior month. (0900/1400)

LIVECHAT-FX WEEK AHEAD with Reuters FX analysts Jeremy Boulton and Richard Pace
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 (Compiled by Astha Rawat in Bengaluru)