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Profit warnings mount
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October 5, 2001: 2:11 p.m. ET
More than 700 companies have issued 3Q warnings; many cite attacks
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Hundreds of companies are set to report dismal quarterly results in the coming weeks and many will pin the blame on the Sept. 11 terrorist attacks, which have turned an already weak profit picture into a rout.
With more than 700 companies in travel, technology, insurance, financial, media and other sectors warning of lower third-quarter profits, attention is now shifting from the economy to earnings as firms prepare to announce their results over the next three or four weeks.
Since Sept. 11, when terrorists hijacked commercial jetliners and crashed them into New York's World Trade Center and the Pentagon, killing thousands, 285 companies have issued warnings, according to earnings tracker First Call.
Analysts expect earnings of Standard & Poor's 500 index companies will drop 21.3 percent from the year-earlier period compared with a 14.6 percent drop expected the day before the attacks, according to First Call.
Those forecasts may be outdated, given that many companies have not provided specific guidance since issuing earnings warnings.
Nevertheless, some believe the crushing warnings and lowered profit expectations may have brought overvalued stocks to within more realistic price-to-earnings ratios, better positioning them for a rebound when the economy recovers.
"It's like somebody stuck their finger in there and pushed the pendulum to the pessimistic side, so it'll probably swing out further," said Chuck Hill, First Call's director of research. "So the back swing is probably going to have a lot more momentum than it would have had otherwise. The negative is the news is going to be worse in the short-term, but we're probably going to get over it sooner."
Meanwhile, near-term prospects are bleak.
Airline, travel industries hardest hit
The airline and travel industries were among the hardest hit, with bookings virtually disappearing in the days after the attacks and hotel vacancy rates soaring to unprecedented levels as people had second thoughts about traveling.
On Sept. 7, AMR Corp. (AMR: down $0.65 to $20.50, Research, Estimates), the world's biggest airline company and operator of American Airlines and Trans World Airlines, warned that it anticipates a wider third-quarter loss and a loss in the fourth quarter because of declining business in the slowing economy.
After the attacks, which involved planes of American and competitor United Airlines (UAL: down $0.40 to $18.25, Research, Estimates), none of the carriers warned. Wall Street still has no clear guidance on the sector, but most are certain results will significantly miss estimates after the carriers laid off tens of thousands and said in sworn Congressional testimony that they faced bankruptcy without federal aid.
"There was no air service for a couple of days after the attack, and then when it resumed, nobody wanted to get on a plane," said J.D. Cogan, a leisure analyst with Banc of America Securities.
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There was no air service for a couple of days after the attack, and then when it resumed, nobody wanted to get on a plane
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J.D. Cogan
Leisure analyst
Banc of America Securities |
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Travel and leisure companies also have taken tremendous hits as consumers rethink vacation and business travel plans.
MGM Mirage (MGG: up $0.38 to $23.23, Research, Estimates), Mandalay Resort (MBG: up $0.26 to $18.99, Research, Estimates), and Cendant Corp. (CD: down $0.43 to $12.74, Research, Estimates), owner of the Ramada Hotel chain among others, all issued warnings in the weeks following the tragedy.
Click here to check out the earnings scorecard
Hotel bookings plummeted 37 percent from year-earlier levels the week of Sept. 16, the worst comparison ever in the lodging industry, Cogan said.
That led Marriott International Inc. (MAR: up $0.65 to $32.75, Research, Estimates), which lost two hotels near the World Trade Center, to warn Thursday that fourth-quarter results will miss expectations due to lost business from the attacks.
The gaming industry fared no better. Las Vegas hotel bookings are down to about 65 percent occupancy during the week when they normally are 90 percent or better. That has hurt hotel operator MGM Mirage and others hotel/casino operators.
Cruise lines such as Carnival (CCL: up $0.28 to $23.45, Research, Estimates) and Royal Caribbean (RCL: down $0.27 to $10.60, Research, Estimates), which already had been struggling before the attacks, have been booking far fewer passengers and could face more pressure in the fourth quarter.
Insurance, media, autos also struggling
Insurers also face tough times, at least in the near term, as they deal with billions of dollars in claims related to the attacks.
Chubb Corp. (CB: down $0.76 to $74.59, Research, Estimates) warned Sept. 20 that it would take between $500 million and $600 million in charges as a result of the attacks.
That followed a warning from Warren Buffett's Berkshire Hathaway Corp. (BRK.B: down $38.00 to $2348.00, Research, Estimates), which has significant insurance holdings, that it would take $2.2 billion in charges.
Technology hit hard
Media firms are losing revenue from advertising in the wake of the attacks as companies rein in spending in anticipation of a recession.
Viacom Inc. (VIA.B: down $1.30 to $34.35, Research, Estimates), owner of the CBS, Nickelodeon and other television networks, News Corp. (NWS: up $0.42 to $26.57, Research, Estimates), operator of the Fox News Channel, and AOL Time Warner (AOL: down $0.01 to $34.09, Research, Estimates), parent of CNNfn and CNNfn.com, all have warned of weaker performance because of the attacks.
The auto industry also is struggling as consumers cut back on big-ticket purchases. Ford Motor Co. (F: up $0.41 to $17.65, Research, Estimates), the world's No. 2 automaker, warned that it will post a wider-than-expected loss due to the cost of sales incentives following the attacks.
Technology firms are seeing drastic cutbacks in demand on top of already weak demand before the attacks, as many customers clamp spending until a clearer picture emerges of the U.S. economy in the wake of an expected military response.
Nortel Networks (NT: down $0.17 to $5.38, Research, Estimates), JDS Uniphase (JDSU: unchanged at $7.02, Research, Estimates), EMC Corp. (EMC: up $0.78 to $13.28, Research, Estimates), and a host of other players all issued warnings since the tragedy, blaming a slowdown in business and consumer demand.
Personal computer makers also are suffering, with Gateway (GTW: up $0.18 to $5.03, Research, Estimates) warning Thursday that it expects to post a loss of 14 to 17 cents a share for the third quarter instead of the 4 cents a share loss analysts expected, according to First Call. The company blamed a drop in consumer spending after the attacks that hurt sales. Compaq Computer (CPQ: down $0.25 to $8.60, Research, Estimates), which is in the process of being bought by Hewlett-Packard (HP: down $0.14 to $27.58, Research, Estimates), warned Oct. 1 that it will miss third-quarter estimates.
"I think it goes without saying the third quarter is going to be bad virtually across the board for anyone in technology," said Robert Cihra, a technology analyst with ABN Amro who follows the PC industry.
Before the attacks, Cihra expected a 6 percent decline in PC sales for 2001. Now he's expecting a 9 percent decline. And things could get worse if the U.S. does indeed slip into a recession and companies hold off spending until the environment improves. 
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