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Four earnings reports that matter
The first-quarter earnings reporting period begins this week. Here are the key reports to watch.
April 5, 2004: 4:15 PM EDT
By Alexandra Twin and Paul R. La Monica, CNN/Money Staff Writers

NEW YORK (CNN/Money) - First-quarter earnings reports start pouring in this week, and by all accounts, they're primed to please. What's in question is whether the strong earnings will ail the rangebound stock market.

S&P 500 earnings are expected to rise 16.9 percent in the first quarter versus the same period a year earlier, according to Standard & Poor's analysts, the biggest first-quarter earnings rise in four years.

But when all is said and done, actual earnings could rise as much as 20 percent year-over-year, said First Call analyst Ken Perkins, due to the unusually low number of negative pre-announcements.

He said the ratio of negative-to-positive pre-announcements is always slanted to the negative, but is narrower this quarter than it has been in recent years. Around 1.6 companies have issued warnings for every company that has raised its forecast in the first quarter. During the three-year bear market, the ratio was about 2.3 warnings for every 1 company that raised its outlook.

The most high-profile company to warn this week was QLogic (QLGC: Research, Estimates). The company saw its shares and those of other data storage makers punished in response, but the broader market was able to absorb it. However, the slew of positive pre-announcements haven't provoked as strong a reaction on the upside.

Fourth-quarter earnings were the strongest in a decade. Some analysts argue that expectations for solid first-quarter earnings are already priced into the market, making it unlikely that strong results will trigger a new rally. But others say that the choppy market could seize on the results and return to rally mode, particularly if the earnings and forecasts are especially upbeat.

Companies in this report: Alcoa, Genentech, Yahoo! and General Electric.

Alcoa, Tuesday p.m.

Steady cost-cutting and the benefits of increased demand for its products have benefited Dow component Alcoa (AA: Research, Estimates) in the last few quarters, with the world's leading aluminum producer posting a solid profit in the last quarter, up from a loss a year earlier. All indications point to that trend to continue.

Recently, analysts at Morgan Stanley, Merrill Lynch, J.P. Morgan and other brokerages raised their forecasts on global aluminum prices over the next two years due to increasing worldwide demand and what is looking to become insufficient supply. As a result, the brokerages have also raised their forecasts on Alcoa earnings in 2004 and 2005, as well as those of other aluminum producers.

Although it's been choppy of late, analysts say that the continuing U.S. and international economic recovery will fuel aluminum demand, and that a slowdown in aluminum production in China in 2004 and 2005 will yield a supply deficit. All of which is good news for the aluminum producers.

Why it matters: If Alcoa says aluminum demand and prices are rising and so are the company's earnings, that would support hopes that the recent slowdown in the economic recovery is just a hiccup.

Alcoa is the first Dow 30 company and first major S&P 500 player to report earning results. What it has to say will set a psychological tone for the first-quarter earnings reporting period.

First Call forecast: 42 cents per share, versus 23 cents a year earlier.

Genentech, Wednesday p.m.

The surge in biotech played a notable role in the stock market rally of 2003 and early 2004, particularly on the Nasdaq, where many biotechs trade. The sector saw a number of positive late-stage drug trials and some reasonably quick regulatory approvals, the pursuit of which defines biotech gains and losses.

The race to treat colon cancer heated up in the last year with the approval of the much-maligned ImClone's Erbitux, and Genentech (DNA: Research, Estimates)'s Avastin. Analysts expect Avastin to ultimately be a more than $1 billion in annual sales juggernaut for Genentech and to also impact the development of other cancer treatments at Genentech and other biotechs.

Genentech also saw the approval of other drugs all of which boosted its 2003 revenue. The problem is, its stock price has risen around 200 percent from its 52-week lows, and most analysts say the stock is very expensive, even relative to what are likely to be improved future sales and earnings.

Why it matters: With many analysts wary of the stock's run and talking of a bubble in biotech, what the company has to say about its future sales and earnings and its drugs in various stages of development will be relevant to the broader sector, not to mention hopes for another blockbuster Nasdaq rally in 2004.

First Call forecast: 31 cents per share, versus 35 cents a year earlier.

Yahoo!, Wednesday p.m.

Dot-com mania is back. Ask Jeeves is on fire this year. Shares of a relatively obscure search company called Mamma.com have come out of nowhere. And Wall Street is still waiting with bated breath for Google to file for its IPO.

So when the granddaddy of the Internet world, Yahoo!, reports its first quarter earnings, investors will be hoping for results that are nothing short of spectacular. Expectations are high and rightfully so.

Paid search, which allows companies to tie ads to specific keywords, is a burgeoning business since advertisers find it to be more effective than banners and pop-ups.

The local search market is heating up as well. Yahoo! recently rolled out local search functions...kind of like an online Yellow Pages. Google also unveiled a test version of a local search tool. And Infoseek bought local listings company Switchboard last month.

Yahoo! is also attempting to expand in the e-commerce area. It purchased European comparison shopping site Kelkoo last month. A U.S. rival, Shopping.com, filed to go public in March as well.

So the fact that Yahoo! is clicking (yes, it's a terrible pun but we just couldn't resist) is not going to be a surprise to anybody. Yahoo! has bucked the tech sell-off so far this year: Shares are up 8 percent. But the key to sustained momentum will be the outlook the company gives for the second quarter and beyond, especially with the competition it is bound to face from Google's new free e-mail service..

Why it matters: Yahoo! will be the first major tech company to report its first quarter earnings. The way Wall Street reacts to what should be extremely strong numbers could set the tone for the rest of earnings season. The stock fell slightly the day after Yahoo! reported fourth quarter results in January because it merely met earnings estimates and did not substantially raise sales guidance. Many techs suffered similar fates in January.

Because of Yahoo's heavy reliance on advertising, the report should also give investors some indication about how media companies will do in the quarter. Finally, the results from Yahoo!'s HotJobs division could provide some further clues about whether not the employment situation is really improving.

First Call forecast: 10 cents a share, versus 8 cents a year ago.

General Electric, Thursday a.m.

In-line fourth-quarter earnings pleased, but didn't wow analysts who cover GE (GE: Research, Estimates), particularly as it followed CEO Jeffrey Immelt's late 2003 forecast for fairly anemic profit growth in 2004, to be followed by a broader 2005 earnings recovery.

But lately, that perception has been changing, with some analysts saying continued strength in the economy and a rebound in GE's global orders bode well for the first quarter and perhaps beyond. Prudential recently put out a note saying comments from management suggest momentum is gaining across the board and that first-quarter earnings should be strong.

At its analysts meeting last month, GE's management backed forecasts for first-quarter earnings to come in at the high end of its previous forecast of between 30 cents and 32 cents per share. The company attributed this to the fact that it's been seeing across-the-board growth in industrial orders and financial services assets. The company acknowledged that historically high energy prices have continued to hurt its plastic business, but said orders for aircraft spare parts have picked up.

This pickup in growth isn't obvious in GE's stock price, which ends the quarter pretty much where it started, after having risen, plunged and recovered, partly in tune with the broader market and partly due to its own concerns. The stock has languished amid acquisition-related issues -- the recent equity offering to raise $3.8 billion, earmarked in part to fund its purchase of Vivendi Universal's U.S. entertainment assets; the purchase of UK-based healthcare firm Amersham; and plans for an IPO next month of GE's insurance operations.

Merrill Lynch recently added the stock to its Focus 1 list, saying investors should use the recent stock weakness as a buying opportunity.

Why it matters: The world's largest company by market capitalization is also one of the largest by association -- it's involved in making everything from light bulbs to jet engines, provides financing and insurance and owns NBC and other media. What it has to say about the health of its business is still seen as something of a proxy for other businesses, and for the broader economic recovery.

First Call forecast: 31 cents per share, versus 32 cents a year earlier.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.