secono me uno dei migliori commenti sugli utili è quello della firstcall. vorrei cercare per quanto possibile di tenerlo aggiornato su questo post. Puo essere utile????
THIS WEEK IN EARNINGS:
APRIL 14 - 18, 2003
EARNINGS OUTLOOK
We have been saying for some time that the key issue to focus on during this reporting season is what the analysts do with their estimates for 2H03, particularly 3Q03. Would the analysts slash the upcoming estimates as they did a year ago and again last fall, each time pushing back by six months the expected step up in earnings growth? We have been fessing up for some time that we didn't know what to expect.
Unfortunately (we're getting tired of using that word and look forward to when we can replace it with fortunately), the pre-announcement and estimate revision patterns of the last two weeks now have us leaning toward expecting another round of estimate slashing that pushes the step up in earnings growth back another six months.
The drop since 1 April in the expected S&P500 earnings growth has been from 7.0% to 6.5% for 2Q03, and from 13.2% to 12.5% for 3Q03. Most of the cuts have come in three sectors. The tiny transports sector expectations went from 8% to 1% for 2Q03 and from 28% to 25% for 3Q03. But that is driven by the airline problems.
Among the three sectors most sensitive to capital spending the declines have not been so pronounced. Although the industrial sector earnings for 2Q03 and 3Q03 were slashed during the first three months of 2003, they are unchanged at -9% and 7%, respectively, since 1 April. The slashing in materials continued, going from 3% to 0% for 2Q03 and from 26% to 24% for 3Q03.
The tech sector where estimates had been holding up so well from the beginning of the year until lately, saw signs of estimate cutting resuming. The 2Q03 estimates held up well from 1 January through 1 April, falling only two percentage points over those three months. However, that drop from 25% to 23% took place from the last two weeks of March. Since 1 April, the expected growth fell from 23% to 21% although the 3Q03 growth expectations only fell from a very ambitions 54% to 53%.
Another thing that makes us suspicious that the tech estimates may be beginning to crack is the rise in the ratio of negative to positive pre-announcements over the last two weeks. The ratio jumped from 2.0 to 2.5. Two weeks ago there were 25 negative to only 1 positive. It wasn't that bad last week, but the 18 negative to 6 positive was still more negative than usual.
We are beginning to believe the cuts in the three capital spending sensitive sectors, as well as in some other economic sensitive sectors, will accelerate as the 1Q03 reports come out with their accompanying comments and guidance about the upcoming months. By early May the pattern should have emerged, and the die will likely be cast for 2H03.
We suspect that 3Q03 may be too early in the recovery to expect the big pickup in earnings in the three capital spending sensitive sectors that analysts are expecting. The capital spending binge induced recession left too many industries with too much capacity, and it is unlikely reach utilizations high enough to trigger opening the capital spending spigot in enough industries this soon in the recovery.
Last Monday, McDonald's announced a cutback in capital spending for 2003. Plans were reduced from earlier plans of $1.9B to $1.2B, down from $2.0B in 2002. Net new restaurants added in 2003 are expected to be 360, compared to over 1000 in 2002. We view this as an implicit recognition that there are too many burger joints on too many corners. We believe it is representative of what needs to be done by others in the restaurant industry, and by others in many other industries facing overcapacity and stiff competition.
There may be more announcements of this nature in the coming months, indicating that the reopening of the capital spending spigot may be a ways off for many industries. Meantime, we still need the consumer to continue to be the driver until that spigot opens. The economic news last week relating to the consumer was not as encouraging as the summary numbers may have indicated.
After the dismal employment related reports week before last, the weekly new unemployment claims reported last week for the week before last remained over 400k. At 405k, the good news was that 405k was less than the 445K the week before, and was below expectations of 425k. The drop last week was only from a transitory spike. The four week average for new employment claims has been oscillating around 400k for the past two years, with no signs of falling back to more typical post recession averages of about 350k.
The March retail sales number looked terrific on the surface. It was up 2.1% from February versus an estimated 0.7%, and following a 1.6% decline in February from January. Ex autos the gain was a still robust 1.1% versus an estimate of 0.4%, and following a 1.0% decline in February. But much of the surge was driven by a 7.9% gain in building materials which took a hit in February because of the bad weather in much of the country. Auto industry sales were up 5.6%. None of the other categories showed growth above 1.5%.
The University of Michigan preliminary consumer sentiment for April came in at 83.2, well above the 78.3 expected or the 77.6 for March. But how much of that was due to the end of the war is hard to tell and how much of that war euphoria will hold remains to be seen.
MARKET OUTLOOK
Now that Tommy Franks declared the war over last Friday, the market focus on geopolitical issues shifts to news about running Iraq and restoring US relations with non-coalition countries. That means the two types of news items that will have the most impact on the market will be those that indicate Saddam and sons have been verifiably killed, making running Iraq easier, and those that indicate weapons of mass destruction have been verifiably found, making it easier to restore good relations with Russia, France, Germany, and others. Geopolitical news will still be important, but the market focus will shift more toward economic and earnings issues.
Market emotion always overreacts and its emotional reaction to the winning of the war has been no different. Every time the market has a big run on good news from the war front, it eventually triggers second thoughts about what the economy may be like after the dust settles on the Iraqi war. Unfortunately, it is hard to sort out how much impact the war and the resultant higher oil prices have had on the economy. Even if we could, there remains the issue that this recession was very different from any in our lifetime. Even without the war and the other geopolitical concerns there would still be a lot of uncertainty on how the economic and earnings recovery would unfold.
Therefore, the uncertainties are extremely high on what will happen to 3Q03 earnings. The market doesn't really care much at this point about 2Q03 earnings. The market tends to look ahead about two quarters, so the real issue is whether the pickup in earnings growth anticipated by the industry analysts will materialize.
But as we have been stressing, the crystal ball has been fuzzier than many of us have ever seen in our lifetimes. Part is due the unusual nature of this recession and part due to the geopolitical uncertainties, particularly in recent weeks the outbreak of hostilities in Iraq. With all these uncertainties, compounded by the fact that 1Q03 earnings were substantially distorted by the higher energy prices, investors are recognizing that they have to dig even deeper into what is going on at the investment candidates of interest.
That means back to the fundamentals, especially in the form of closer scrutiny of the candidates balance sheet and income statements and the accounting behind them. It also means a harder look at a companies strategy and how it fits into its industry. It means wringing out the emotion and being more objective, both in analyzing the fundamentals and in determining realistic valuations.
One thing that does give us hope is that the talk about the tech sector may have swung to the negative extremes typical of a market bottom. The pendulum always swings too far at the bottom. It usually takes the form of pessimism that the industry is mature and that the base is now so big that new technology driven markets will not be able to have as much impact as in the past.
The WSJ article on Larry Ellison, head of Oracle, last Tuesday was a great example. Larry's ramblings merited front page of the Marketplace section, complete with a full color caricature. It may be sort of the reverse of the Sports Illustrated or Business Week cover syndrome where one's appearance on the cover for positive reasons is often the sign of that downfall is just around the corner. Larry felt the industry might not be immune to aging. He felt that the current turmoil signifies "the end of Silicon Valley as we know it". He felt tech "is as big as it's going to be". Strong words.
The next day the NY Times ran an article on the front page of the business section complete with color photo of Gordon Moore. This one stated that experts were warning "that Moore's law may soon reach theoretical limits, with dire consequences for the technology industry's economic engine". Moore's law is that the number of transistors on a chip would double annually. This argument has been made countless times over at least the last twenty years. But there always seems to be some unforeseen breakthroughs that keep the technology on track with Moore's law. And there is enough on the drawing board now that will likely keep it on track for at least another decade. At some point it will run into theoretical limits, but not in the near future.
The driver is intact, but as in the past, it shows up in end products in waves. We just happen to be in one of those dead spots at the moment, which reinforces the pessimism generated by the economic doldrums.
We love seeing articles like these because they seem to be a necessary prerequisite before the next surge in technology itself, and in tech stock valuations. If we are not yet at the bottom, articles like these probably are an indication it may not be too far off. While we may have been one of those that pooh-poohed the new era or new paradigm talk in the late 1990's, because we felt that tech was still cyclical, we also said that it was high cyclicality superimposed on a high growth trendline. We believe that is still true.
THIS WEEK IN EARNINGS:
APRIL 14 - 18, 2003
EARNINGS OUTLOOK
We have been saying for some time that the key issue to focus on during this reporting season is what the analysts do with their estimates for 2H03, particularly 3Q03. Would the analysts slash the upcoming estimates as they did a year ago and again last fall, each time pushing back by six months the expected step up in earnings growth? We have been fessing up for some time that we didn't know what to expect.
Unfortunately (we're getting tired of using that word and look forward to when we can replace it with fortunately), the pre-announcement and estimate revision patterns of the last two weeks now have us leaning toward expecting another round of estimate slashing that pushes the step up in earnings growth back another six months.
The drop since 1 April in the expected S&P500 earnings growth has been from 7.0% to 6.5% for 2Q03, and from 13.2% to 12.5% for 3Q03. Most of the cuts have come in three sectors. The tiny transports sector expectations went from 8% to 1% for 2Q03 and from 28% to 25% for 3Q03. But that is driven by the airline problems.
Among the three sectors most sensitive to capital spending the declines have not been so pronounced. Although the industrial sector earnings for 2Q03 and 3Q03 were slashed during the first three months of 2003, they are unchanged at -9% and 7%, respectively, since 1 April. The slashing in materials continued, going from 3% to 0% for 2Q03 and from 26% to 24% for 3Q03.
The tech sector where estimates had been holding up so well from the beginning of the year until lately, saw signs of estimate cutting resuming. The 2Q03 estimates held up well from 1 January through 1 April, falling only two percentage points over those three months. However, that drop from 25% to 23% took place from the last two weeks of March. Since 1 April, the expected growth fell from 23% to 21% although the 3Q03 growth expectations only fell from a very ambitions 54% to 53%.
Another thing that makes us suspicious that the tech estimates may be beginning to crack is the rise in the ratio of negative to positive pre-announcements over the last two weeks. The ratio jumped from 2.0 to 2.5. Two weeks ago there were 25 negative to only 1 positive. It wasn't that bad last week, but the 18 negative to 6 positive was still more negative than usual.
We are beginning to believe the cuts in the three capital spending sensitive sectors, as well as in some other economic sensitive sectors, will accelerate as the 1Q03 reports come out with their accompanying comments and guidance about the upcoming months. By early May the pattern should have emerged, and the die will likely be cast for 2H03.
We suspect that 3Q03 may be too early in the recovery to expect the big pickup in earnings in the three capital spending sensitive sectors that analysts are expecting. The capital spending binge induced recession left too many industries with too much capacity, and it is unlikely reach utilizations high enough to trigger opening the capital spending spigot in enough industries this soon in the recovery.
Last Monday, McDonald's announced a cutback in capital spending for 2003. Plans were reduced from earlier plans of $1.9B to $1.2B, down from $2.0B in 2002. Net new restaurants added in 2003 are expected to be 360, compared to over 1000 in 2002. We view this as an implicit recognition that there are too many burger joints on too many corners. We believe it is representative of what needs to be done by others in the restaurant industry, and by others in many other industries facing overcapacity and stiff competition.
There may be more announcements of this nature in the coming months, indicating that the reopening of the capital spending spigot may be a ways off for many industries. Meantime, we still need the consumer to continue to be the driver until that spigot opens. The economic news last week relating to the consumer was not as encouraging as the summary numbers may have indicated.
After the dismal employment related reports week before last, the weekly new unemployment claims reported last week for the week before last remained over 400k. At 405k, the good news was that 405k was less than the 445K the week before, and was below expectations of 425k. The drop last week was only from a transitory spike. The four week average for new employment claims has been oscillating around 400k for the past two years, with no signs of falling back to more typical post recession averages of about 350k.
The March retail sales number looked terrific on the surface. It was up 2.1% from February versus an estimated 0.7%, and following a 1.6% decline in February from January. Ex autos the gain was a still robust 1.1% versus an estimate of 0.4%, and following a 1.0% decline in February. But much of the surge was driven by a 7.9% gain in building materials which took a hit in February because of the bad weather in much of the country. Auto industry sales were up 5.6%. None of the other categories showed growth above 1.5%.
The University of Michigan preliminary consumer sentiment for April came in at 83.2, well above the 78.3 expected or the 77.6 for March. But how much of that was due to the end of the war is hard to tell and how much of that war euphoria will hold remains to be seen.
MARKET OUTLOOK
Now that Tommy Franks declared the war over last Friday, the market focus on geopolitical issues shifts to news about running Iraq and restoring US relations with non-coalition countries. That means the two types of news items that will have the most impact on the market will be those that indicate Saddam and sons have been verifiably killed, making running Iraq easier, and those that indicate weapons of mass destruction have been verifiably found, making it easier to restore good relations with Russia, France, Germany, and others. Geopolitical news will still be important, but the market focus will shift more toward economic and earnings issues.
Market emotion always overreacts and its emotional reaction to the winning of the war has been no different. Every time the market has a big run on good news from the war front, it eventually triggers second thoughts about what the economy may be like after the dust settles on the Iraqi war. Unfortunately, it is hard to sort out how much impact the war and the resultant higher oil prices have had on the economy. Even if we could, there remains the issue that this recession was very different from any in our lifetime. Even without the war and the other geopolitical concerns there would still be a lot of uncertainty on how the economic and earnings recovery would unfold.
Therefore, the uncertainties are extremely high on what will happen to 3Q03 earnings. The market doesn't really care much at this point about 2Q03 earnings. The market tends to look ahead about two quarters, so the real issue is whether the pickup in earnings growth anticipated by the industry analysts will materialize.
But as we have been stressing, the crystal ball has been fuzzier than many of us have ever seen in our lifetimes. Part is due the unusual nature of this recession and part due to the geopolitical uncertainties, particularly in recent weeks the outbreak of hostilities in Iraq. With all these uncertainties, compounded by the fact that 1Q03 earnings were substantially distorted by the higher energy prices, investors are recognizing that they have to dig even deeper into what is going on at the investment candidates of interest.
That means back to the fundamentals, especially in the form of closer scrutiny of the candidates balance sheet and income statements and the accounting behind them. It also means a harder look at a companies strategy and how it fits into its industry. It means wringing out the emotion and being more objective, both in analyzing the fundamentals and in determining realistic valuations.
One thing that does give us hope is that the talk about the tech sector may have swung to the negative extremes typical of a market bottom. The pendulum always swings too far at the bottom. It usually takes the form of pessimism that the industry is mature and that the base is now so big that new technology driven markets will not be able to have as much impact as in the past.
The WSJ article on Larry Ellison, head of Oracle, last Tuesday was a great example. Larry's ramblings merited front page of the Marketplace section, complete with a full color caricature. It may be sort of the reverse of the Sports Illustrated or Business Week cover syndrome where one's appearance on the cover for positive reasons is often the sign of that downfall is just around the corner. Larry felt the industry might not be immune to aging. He felt that the current turmoil signifies "the end of Silicon Valley as we know it". He felt tech "is as big as it's going to be". Strong words.
The next day the NY Times ran an article on the front page of the business section complete with color photo of Gordon Moore. This one stated that experts were warning "that Moore's law may soon reach theoretical limits, with dire consequences for the technology industry's economic engine". Moore's law is that the number of transistors on a chip would double annually. This argument has been made countless times over at least the last twenty years. But there always seems to be some unforeseen breakthroughs that keep the technology on track with Moore's law. And there is enough on the drawing board now that will likely keep it on track for at least another decade. At some point it will run into theoretical limits, but not in the near future.
The driver is intact, but as in the past, it shows up in end products in waves. We just happen to be in one of those dead spots at the moment, which reinforces the pessimism generated by the economic doldrums.
We love seeing articles like these because they seem to be a necessary prerequisite before the next surge in technology itself, and in tech stock valuations. If we are not yet at the bottom, articles like these probably are an indication it may not be too far off. While we may have been one of those that pooh-poohed the new era or new paradigm talk in the late 1990's, because we felt that tech was still cyclical, we also said that it was high cyclicality superimposed on a high growth trendline. We believe that is still true.
