U.S. third quarter earnings warning ratio is second worst since 2001

NEW YORK Mon Sep 30, 2013 2:38pm EDT

A street sign for Wall Street hangs in front of the New York Stock Exchange May 8, 2013. REUTERS/Lucas Jackson

A street sign for Wall Street hangs in front of the New York Stock Exchange May 8, 2013.

Credit: Reuters/Lucas Jackson

NEW YORK (Reuters) - U.S. companies are warning about third-quarter earnings at a rate lower than last quarter but still at the second highest level since 2001, leaving estimates well below what they were just three months ago.

Companies issuing negative outlooks for the quarter outnumber positive ones by 5.2-to-1, the most negative since the 6.3-to-1 ratio in the second quarter.

The second-quarter ratio is the worst since the first quarter of 2001. The third quarter would be the second worst since 2001, according to Thomson Reuters data.

As a result, third-quarter earnings for Standard & Poor's 500 companies were expected to increase by 4.6 percent compared with a year ago, down from a forecast of 8.5 percent on July 1.

"I think companies have done exactly what they do in the confessional month every cycle. They try to talk the numbers down so they can engineer an upside surprise," said Phil Orlando, chief equity market strategist at Federated Investors in New York.

S&P 500 companies have beaten analysts' earnings expectations, on average, by 67 percent over the last four reporting periods.

Technology is the sector with the highest number of third-quarter negative outlooks, with 27 warnings. Among them was Autodesk Inc (ADSK.O), which anticipates lower demand for its computer-aided design software used in construction, manufacturing and engineering.

Consumer discretionary companies have the second highest number of warnings, including Target Corp (TGT.N). Target said in August that shoppers remained cautious and that its new Canadian stores were not doing as well as anticipated.

Consumer discretionary companies, however, were expected to post earnings growth of 7.3 percent for the third quarter, the third highest of the S&P 500 sectors after financials and telecommunications, according to Thomson Reuters data.

Mike Jackson, founder of investment firm T3 Equity Labs in Denver, sees S&P 500 energy, financials and industrials as sectors more like to surprise to the upside, while utilities, telecommunications and consumer staples are the least likely.

But, he noted, "there's a lot of noise right now that's driving sector performance, and not the fundamentals."

Stock investors have been worried as the U.S. Congress, which was still in partisan deadlock on Monday over Republican efforts to halt President Barack Obama's healthcare reforms, was on the verge of shutting down most of the U.S. government, starting Tuesday morning.

(Reporting by Caroline Valetkevitch; Editing by Jeffrey Benkoe)

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