U.S. companies shy about outlook, sowing doubts

By Nick Carey - Analysis

CHICAGO (Reuters) - As all farmers worth their salt will tell you, green shoots do not guarantee a harvest.

And Wall Street may well be forced to learn that age-old agricultural lesson in the corporate earnings season that has just started.

Breathless talk this past spring of metaphorical 'green shoots' -- portending the end of the recession and a revival of profits -- has tailed off as the economic data have been mixed at best.

"The green shoots theory may have been somewhat exaggerated," said Nariman Behravesh, chief economist at IHS Global Insight. "But it is not entirely unrealistic, as we are either very near or at the bottom."

That leaves investors eyeing second-quarter earnings releases not so much for a view of the most recent quarter but what is happening out there right now at the factory gate or in the order book.

"What people are looking for in this quarter isn't necessarily good second-quarter earnings relative to expectations, but what the guidance looks like for the rest of the year," said John Forelli, portfolio manager at Independence Investments LLC in Boston. "This is the quarter that matters, people want to see progress in the third quarter."

Still, few expect to get many solid predictions for the rest of the year as many companies hide behind the phrase "lack of visibility" -- a euphemism for saying they really don't know what is around the corner.

"Right now people are very reluctant to make predictions," said Peter Morici, an economics professor at the University of Maryland. "Too many of them have been burned by the green shoots theory."

Instead, companies are expected to focus on their own businesses and customer feedback rather than providing a big-picture view for the rest of 2009.

Among the nonfinancial companies that have reported quarterly results so far, there hasn't been much conviction about a sustained recovery being around the corner.

For example, Dell Inc (DELL.O) forecast lower gross margins in the current quarter because demand has shifted toward cheaper computers and as component prices are rising.

Railroad operator CSX Corp (CSX.N) posted better-than-expected earnings on Monday as cost-cutting offset a 21 percent drop in freight volumes and its CEO Michael Ward said that the worst of the recession appears to be over.

But, he also said: "The question now is how long we'll stay at the bottom and how long it will take to recover."

SHADES OF GREEN

Amid the economic chaos and freezing in credit that followed the demise of Lehman Brothers (LBHKL.PK) last September, corporate earnings predictions vanished at the beginning of 2009 as corporations couldn't see beyond the next day or week.