U.S. Corporate Earnings Shortfalls Seen at Record in Fourth Qtr

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01/04 05:22 U.S. Earnings Shortfalls Seen at Record in Fourth Qtr (Update2) By Jim Finkle

Boston, Jan. 4 (Bloomberg) -- As many as 700 U.S. companies are likely to announce fourth-quarter earnings will fall short of estimates, the most for any period since at least 1995 and possibly the most ever, Chuck Hill of First Call/Thomson Financial said.

So far, 517 companies, including No. 1 software maker Microsoft Corp. and top chipmaker Intel Corp., said their results didn't meet forecasts in the last three months of 2000. At this time last year, just 273 companies had made similar announcements, said Hill, research director for First Call, a firm that monitors corporate earnings.

Announcements of earnings disappointments are expected to increase over 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 recorded by First Call in the fourth quarter of 1998, Hill said.

``Earnings growth has suddenly fallen off a cliff,'' he said late yesterday in an interview with the Bloomberg Forum.

Rate Cut

Still, Hill and other analysts praised the decision of Federal Reserve policymakers 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,'' Hill said.

News of the rate cut reduced that uncertainty, driving the Nasdaq Composite Index of technology stocks up a record 14.2 percent yesterday. Still, analysts said it could take nine to 12 months for the change in Fed policy announced today to trickle through the economic system and to the aid of companies.

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, a fund manager with South Korea's Mirae Asset Investment Management Co., who manages $80 million.

Slowdown

Hill said the corporate earnings outlook for the next few quarters is grim.

``I don't have any way to prove it, but my guess is'' that the number of earnings disappointments rose to a record in the fourth quarter, he said. First Call doesn't have data on earnings disappointments prior to 1995.

Between 650 and 700 companies -- or more than one in 10 of the 6,000 businesses whose results are tracked by Wall Street analysts -- will likely warn that their fourth-quarter results will fall short of estimates, Hill said.

U.S. stock markets could be volatile over the coming weeks, analysts said, as investors try to weigh the chances that the earnings outlook will get even worse against the potential for interest-rate cuts to boost the economy.

``It will be a little of a tug and play between reduced earnings expectations and lower interest rates,'' said Clyde Carter Jr., who helps manage $1.7 billion in global equities at Banc One Investment Advisors in Columbus, Ohio.

Investors won't know the full extent of the shortfalls until the end of this month when the quarterly earnings-release season is complete. Estimates have already fallen dramatically in just three months.

At the beginning of October, analysts forecast that fourth- quarter U.S. corporate earnings would rise an average of 15.6 percent from a year earlier, according to First Call figures. Now that large technology companies like Compaq Computer Corp. have said their results fell short, that average growth forecast has declined to just 4.3 percent, Hill said.

Big corporations, computer makers and software companies have so far disclosed the most earnings shortfalls, Hill said. Companies that have already said their fourth-quarter results missed estimates include some 124 members of the Standard & Poor's 500 Index and 94 technology companies, according to First Call.

Many of these companies have said it's too early for them to predict what will happen later in the year because they're not sure just how severe the economic downturn will be.

``We've been dealt our hand for the first three quarters of this year,'' Hill said. ``We just haven't seen what that hand is yet.''

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AOlRO8RWoVS5TLiBF

-- Carl Jenkins (somewherepress@aol.com), January 04, 2001


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