Bloomberg News
BOSTON - As many as 700 U.S. companies are likely to announce that fourth-quarter earnings will fall short of estimates, the most for any period since 1995 and possibly the most ever, according to Chuck Hill, director of research at First Call/Thomson Financial.
So far 517 companies including Microsoft Corp. and Intel Corp. said their results did not meet forecasts for the quarter. In the year-earlier period just 273 companies made such announcements, Mr. Hill said.
Bank of America Corp., J.P. Morgan Chase & Co., and Hibernia Corp. have also warned of lower-than-expected fourth-quarter profits. Charlotte, N.C.-based Bank of America and Hibernia, of New Orleans, cited rising problem loans. Morgan and Chase, which merged at yearend, pointed to higher compensation expenses and lower revenues from capital markets activities.
Announcements of earnings disappointments are expected to increase in the next week as companies finish closing the books on the quarter that ended Sunday. As the reports pile up, they likely will surpass the high of 554 reported by First Call in the fourth quarter of 1998, Mr. Hill said.
"Earnings growth has suddenly fallen off a cliff," he said.
Still, Mr. Hill and analysts praised the Federal Reserve's decision to cut interest rates in an effort to stimulate the economy. "The reason the market has been in trouble is that it hasn't had a good sense of when the bottom would be or how deep that bottom will be," Mr. Hill said.
News of the rate cut Wednesday reduced that uncertainty, driving the Nasdaq index of technology stocks up a record 14.2%. Analysts said it could be nine to 12 months, however, before the change in Fed policy to trickles down through the economic system.
The rebound in U.S. stocks will "be short-lived once investors realize it could take a few months before U.S. companies actually see a positive impact," said Lee Byung Ik, who manages an $80 million fund at South Korea's Mirae Asset Investment Management Co.
Mr. Hill said the earnings outlook for the next few quarters is grim. Investors will not know the full extent of the shortfalls until the end of this month, when the quarterly earnings season is complete, and estimates have already fallen sharply in just three months.
