The Wall Street Journal reports:
"Earnings season is here. You may want to avert your eyes.
Alcoa reports first-quarter earnings on Tuesday, and while no longer a member of the Dow Jones Industrial Average, the company’s earnings still mark the unofficial start of earnings season.
The expectations for Alcoa are low: Street consensus is just 5 cents a share, according to Thomson Reuters, down from 11 cents a year ago. The expectations for the S&P 500 companies are low, too. Profits are expected to contract in the first quarter by 1.2%, according to FactSet Research, the first contraction since the third quarter of 2012 (Thomson Reuters is slightly more optimistic, projecting growth of 1.1%). Revenue is seen rising only 2.3%.
Everybody knows the brutal U.S. winter had some effect here, of course, but the other headwind companies are already mentioning is the strong U.S. dollar, FactSet’s John Butters noted. Of the 21 companies that have already reported, 11 have mentioned the dollar as a weight on their bottom line. “It will certainly bear watching how frequently these themes are cited,” he wrote.
Usually, canny traders can at least rely on companies beating expectations (and if those expectations are low, well, then it’s even easier). So far this quarter, though, the pace of earnings “beats” has slowed, Thomson noted. “While it is still too early to draw any firm conclusions, history suggests that we may not see the high percentages of companies beating estimates that we have seen over the past several quarters.” The winter weather, and retailers running heavy sales may tamp down the earnings surprises, the firm said.
It will certainly be interesting to see how the market digests all this. So far this year, U.S. equities have been essentially stalled – at high levels, mind you, but stalled all the same. The stock market hasn’t had a big catalyst to drive that next leg up. Traders will likely write off weak first-quarter numbers to the weather, and indeed the forecast for the rest of the year is brighter: Second-quarter profit growth is seen at 7.6%, according to FactSet, and the whole year is seen at 8.5%.
Of course, one quarter ago the Street saw first-quarter earnings rising 4.3%''.
