The first quarter US corporate earnings reporting season has kicked off with Wall Street bracing for another dismal performance that could keep markets on tenterhooks.
US aluminum giant Alcoa became the first blue chip company to report its January-to-March earnings after the stock market closed on Tuesday, declaring a hefty US$497 million net loss amid plunging prices for the key metal.
Its second consecutive quarterly loss was higher than expected by most analysts and underscored the depth of the 16-month-old US recession flooding listed companies with red ink.
“Alcoa has come out with earnings and losses which are as dismal as a vacation in hell without any water and without any flame retardant,” said Jon Ong of 24/7 Wall Street.
But the earnings were a bit “less bad” than what was expected, or at least not as bad compared to estimates as some might have been expecting, he hastened to add.
Excluding one-time charges, Alcoa posted a loss of US$0.59 a share, slightly higher than the US$0.57 a share anticipated by most analysts.
Anticipating another downbeat earnings season, Wall Street investors locked in profits for the second straight session on Tuesday as the Dow Jones Industrial Average shed 186.29 points or 2.34 percent to end at 7,789.56.
The blue chip index drifted further away from the 8,000 level it breached on Friday, capping a four-week rally.
“Wall Street anticipates a seventh straight quarter of declining profits,” Wachovia Securities chief market strategist Al Goldman said.
“The market is more vulnerable to the expected poor first-quarter earnings and disappointing management outlooks given the recent sharp advance in stocks,” he said.
The latest consensus of industry analysts is that large-cap firms covering about 75 percent of the US equity market by capitalization earned an average US$12.26 per share on an operating basis during the January to March period.
The average was US$16.62 per share a year ago and US$22.39 in the 2007 first quarter.
As the earnings reporting season began, investors had to stomach more depressing news.
A report by Standard & Poor’s said on Tuesday that 367 firms slashed a total of US$77 billion in dividend in the first quarter, making it the worst quarter on record for corporate dividends.
It “is eye-popping,” said Howard Silverblatt, senior analyst at S&P, in a research report on Tuesday. “The full impact of these cuts will be felt this quarter, when the dividend check is sent in the mail.”
Another rating agency, Moody’s Investors Service, said the default rate for corporate bonds was the highest last month since the Great Depression.
Adding to the uncertainty was a survey released on Tuesday showing chief executives of many major corporations anticipated a decrease in expected sales, capital expenditures and employment figures for the next six months.
US corporate trends, such as industrial production, payrolls and orders, remain weak, analysts at Briefing.com cautioned in a note to clients.
“It is not clear whether the bounce in consumer demand will prove a harbinger of better times ahead or a false spring,” they said.