CitigroupMark Lennihan
First-quarter earnings season in the United States gets into full swing this week, with a number of corporate bellwethers reporting results.
Among them, Citigroup Inc. and Texas Instruments Inc. release their figures Monday, followed by Goldman Sachs, IBM, Johnson & Johnson, General Electric Co., Ford Motor Co. and Amazon.com Inc. later in the week. Important names in Canada include Teck Resources Ltd., Encana Corp. and Canadian Pacific Railway Ltd.
Investors will be watching the numbers closely for the light they'll shed on the health of a broad swath of the U.S. economy. There will be particularly high interest in any sputtering in the incredible runup in earnings since the business upturn from the depths of the 2008-09 financial panic.
Standard & Poor's Capital IQ says the consensus among analysts is for S&P 500 stocks to report a respectable gain of 12.2 per cent in the first quarter over the comparable period in 2010.
"This will be the sixth consecutive quarter of double-digit earnings growth for the S&P if the numbers come in as expected," observes Alec Young, an equity strategist for S&P.
"What we've seen over the last couple of years is very strong earnings growth and a lot of beating of expectations," he says, while cautioning that "as we move further and further from the crisis, the comparisons are getting harder."
There has been a hint of that difficulty in the numbers issued to date, from the handful of early-reporting companies last week. The results have been mixed.
Alcoa, which kicked off quarterly earnings season, reported higher-than-expected profits, but missed on sales projections, which spooked investors. Up until now, much of the profit increases in the U.S. have been due to cost cutting, a trend that can't continue indefinitely. Investors have been looking for more buoyant growth in sales revenues as a good sign that earnings can power higher from here.
But there are some good omens in the projections of U.S. earnings for Canada's resource-dominated market. Capital IQ calculates year-over-year analyst consensus earnings estimates by sector in the S&P, and there are some standout gains forecast.
Leading the expected earnings gains this quarter, with a projected rise of 36.3 per cent, are materials stocks, followed by energy producers, with an expected gain of 25.2 per cent, and industrials with 15.8 per cent.
The three laggards are forecast to be telecoms, with earnings down 6.9 per cent, utilities, down 1.4 per cent, and health-care companies, up a slim 1.6 per cent.
There is a "very clear delineation" between cyclical stocks that benefit during periods of global growth and the countercyclical areas that "hold up better during recessions," Mr. Young says. "You would expect that given where we are in the business cycle."
Teck, which reports after the close Monday, should highlight the trend toward robust results in the materials sector. The diversified Canadian-based mining company had earnings of 35 cents a share a year ago. It's expected to report 89 cents, according to estimates compiled by Globeinvestor.com.
Turning to the economics calendar in North America, it will be a light week for data releases in the U.S., with the most important, existing home sales for March, to be issued on Wednesday.
February's figures were weak, raising more worries about the health of the U.S. housing market. Toronto Dominion Bank said in a note to clients that it expects a modest rise to 4.95 million units, although it cautions that the sector remains in the doldrums.
It expects the pace of sales "to remain at very depressed levels in the coming months as fear of further price declines tempers demand."
The headline number to watch in Canada will be Tuesday's release of the March CPI. TD says higher commodity prices could push prices up by 0.6 per cent, although the less volatile core rate will edge up only 0.2 per cent.