* JPMorgan, Goldman Sachs post strong results
* Energy plays like GE, Schlumberger beat consensus
* Tech companies like Intel offer gloomier view
* Negative warnings far outstrip positive forecasts
By Ben Berkowitz
Jan 18 If the latest week of earnings season has
told investors anything, it is that strong banks and energy
companies are getting stronger, while weaker banks and
technology companies are far from conquering the challenges they
have faced in the last few years.
Any sense of optimism for 2013 has to be tempered by a
steady decline in earnings growth forecasts, as well as a recent
rise in companies making mass layoffs in attempts to get costs
further under control.
With U.S. economic growth anemic and the uncertainties of
the "fiscal cliff" still reverberating, companies that went into
the fourth quarter of 2012 with some sense of momentum seem to
have kept that up, while those that were on the wrong foot to
begin with did not get much help.
"The takeaway is that earnings appear to be mimicking the
economic recovery," said Tom Sowanick, co-president and chief
investment officer at Omnivest Group LLC.
JPMorgan Chase & Co, the largest U.S. bank by
assets, posted a 53 percent rise in fourth-quarter profits on
growth in lending and a decline in bad loan costs. Goldman Sachs
Group Inc, the largest U.S. investment bank, crushed Wall
Street estimates on increasing client activity and smaller
payouts to its bankers.
Meanwhile both industrial heavyweight General Electric Co
and oilfield services leader Schlumberger Ltd
handily beat expectations on still-booming demand for oil and
gas equipment and services.
But the challenged got no relief.
Citigroup, the third-largest U.S. bank, badly missed
estimates, striking such a cautious tone that analysts made no
effort to hide their disappointment with the new management.
Lender Capital One Financial Corp missed estimates after
setting aside more money for credit card defaults.
Chipmaker Intel Corp, facing slack demand for
personal computers, beat estimates because of a low tax rate and
then forecast revenue and capital spending that unnerved
investors. AT&T Corp warned of a $10 billion charge
because its pension plan returns are weaker than forecast.
Market strategists like Doug Cote at ING Investment
Management in New York say earnings season has been mixed at
best, though there is always the potential for that to change
with next week's crop of results.
MORE BAD NEWS COMING
All totaled, with 13 percent of the S&P 500 companies having
reported fourth-quarter results as of Friday morning, 62 percent
have beaten expectations, precisely in line with a typical
quarter as computed since the mid-1990s.
But their profit growth has been lackluster at best. Blended
fourth-quarter earnings growth (factoring in what has been
reported and what is estimated to come) now stands at 2.5
percent, according to Thomson Reuters data. Less than four
months ago, the expectation was that fourth-quarter earnings
would grow almost 10 percent.
That may be why forward-looking earnings forecasts are
getting so weak so quickly.
As of now, S&P 500 companies are expecting profits to growth
3.5 percent in the first quarter of this year, the data show.
That figure was 4.3 percent at the start of January and 7.1
percent last October.
The slide, in other words, shows no sign of abating, and the
trend holds equally true for second-quarter growth forecasts.
"I think it's a reflection of a very flat economy right now.
I think that companies might have been a little more hopeful
that the economy was going to be stronger than it is," said
Bryant Evans, portfolio manager at Cozad Asset Management. "I
think companies are pushing back better earnings to later in the
year or early next year."
DEBT AND JOBS
Some companies blamed the ongoing weakness in Europe, which
has moved past the worst of its debt crisis but is still
struggling with the aftermath.
Johnson Controls, the largest U.S. auto part
supplier, warned lower auto production in Europe would eat into
results this quarter, sending shares lower even after it beat
estimates for the last quarter.
Others, like Citigroup, warned they were taking a cautious
posture because of the ongoing uncertainty over the next
financial crisis facing the U.S. Congress: the country's ability
to borrow more to pay its obligations.
"What we would like to see now is how the U.S. deals with
the ongoing debt ceiling debate," Chief Financial Officer John
Gerspach said on a conference call Thursday. The government is
due to hit that ceiling as soon as mid-February, stirring fears
of a debt default if it is not raised.
Some companies are reacting to the uncertainty by cutting
jobs, hoping to save their way to stronger profits. Just this
week, custody bank State Street Corp said it would cut
630 positions worldwide and Procter & Gamble cut 150 jobs
in Europe. They join previous job-cutters like American Express
, which is slashing 5,400 posts.
Even Cirque Du Soleil, the Canadian circus company known for
its imaginative high-wire productions, said this week it would
cut 400 jobs amid rising costs and currency pressure.
But the week's biggest loser might have been Jamie Dimon,
the chief executive of JPMorgan. Despite the record profits his
bank posted, Dimon was taken to task by the company's board for
lax oversight, which led to huge trading losses last year.
The result? A bonus cut that cost Dimon more than $10