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8 that matter, 1 that doesn't
The first-quarter earnings reporting period continues next week, and results should be smokin'
April 9, 2004: 2:21 PM EDT
By Paul La Monica, Alexandra Twin and Chris Isidore, CNN/Money Staff Writers

NEW YORK (CNN/Money) - There were scattered showers this week, but next week, the earnings pour. And boy are they expected to be strong.

Current estimates call for S&P 500 earnings to have risen nearly 17 percent in the first-quarter, but market analysts say the actual number is likely to be even higher. Judging by the lack of negative pre-announcements, signs that the economic recovery may be heating up again and the fact that reported earnings have in recent quarters topped expectations -- actual first-quarter earnings are likely to show growth of at least 20 percent from a year earlier.

That would make this the best first-quarter in four years, and the third quarter in a row that the S&P 500 registers year-over-year earnings growth of at least 20 percent, according to First Call research. Earnings grew 21 percent in the third quarter and 28 percent in the fourth.

Companies and sectors that stand to benefit from the growing economy are expected to lead the charge, with basic materials, technology and financials among the industries that are seen leading the advance.

The week ahead brings a bevy of financial and technology companies' reports, as well as news from a few telecoms, airlines, healthcare and media companies.

Some market watchers think the robust earnings will spark a new April rally. Others worry that strong earnings are already baked into the market, and that with standards so high, companies that beat will be met with indifference unless they are extra bullish. They worry that those that meet, miss or warn will have to face the wrath of testy investors, as Nokia did when it warned this week.

Earnings that matter: Gannett; Johnson & Johnson; Intel; Delta Air Lines; Bank of America, Citigroup; IBM; Nokia.

And one that does not: Apple.

Gannett, Monday a.m.

It’s no secret the brutal advertising market has weighed on the profits of newspaper publishers over the last few years. But lately, certain segments of advertising have been looking up. Recently, most of the major publishers have reported strong increases in help wanted ad sales from the same period in 2003. If the recent jump in March payrolls represents a new wave of hiring that continues in subsequent months, and not an anomaly, help wanted ad sales will keep increasing, supporting the newspapers' revenue.

But help wanted ad sales are not enough to temper the impact of the overall choppy ad sales environment in the first quarter. Although the overall advertising environment is though to be in the beginning of a recovery that should slowly expand through 2004, the first-quarter's slowdown in economic growth likely ate into that market, since ad sales are closely tied with the economy. In particular, display and classified ads are expected to remain spotty, and the broadcast divisions that some of the publishers own remain challenged.

Gannett (GCI: Research, Estimates), which publishes USA Today and other newspapers, is expected to show a slight rise in earnings in the first-quarter from a year earlier, due in part to the improvements in help wanted ad sales, and due in part to easier comparisons to last year's tough first quarter.

Earnings from fellow publishers Dow Jones (DJ: Research, Estimates), E.W. Scripps (SSP: Research, Estimates) and Tribune (TRB: Research, Estimates) this week are expected to show similar trends. New York Times (NYT: Research, Estimates), however, is expected to show a slight drop, to 36 cents versus 43 cents a year earlier, when it reports Monday morning.

Why it matters:

Some labor market watchers see help wanted ads as a leading indicator for the health of the job market. If the newspaper sector reports a big jump in help wanted ads in the first-quarter, or says it sees signs of a strong pickup in future quarters, that would be a good sign for the labor market.

Broader advertising trends are a direct reflection of the economy. If national ads seem to be picking up, its fair to extrapolate that the economic recovery is also again gaining speed.

First Call forecast: $1.00, versus 93 cents a year earlier.

Johnson & Johnson, Tuesday a.m.

Strong sales of its prescription drugs and drug-coated stent Cypher -- not to mention the benefits of the weak dollar -- have helped Johnson & Johnson (JNJ: Research, Estimates)'s earnings over the last few quarters. Analysts expect earnings this quarter to continue showing growth versus the year-earlier period, but some speculate that through the rest of 2004 and 2005 there is a risk for slower revenue growth.

But J&J is not the only one with a hot stent on the market anymore. Boston Scientific (BSX: Research, Estimates) launched Taxus, its rival drug-coated stent, in the first quarter and the company has reported stronger-than-expected initial sales. A variety of smaller rivals are also in the process of developing competing stents so as to get into the lucrative market. To counteract this in the short-term, J&J has teamed up with competitor Guidant (GDT: Research, Estimates) to co-market Cypher until Guidant brings its own competing stent to market in 2006.

In addition to being at risk to losing its dominance in the stent market, the company's blockbuster anemia treatment Procrit has of late lost market share to competitors.

However, that's nothing unusual for the drug and biotech sector. J&J and its rivals are perpetually vulnerable to the short-lived nature of drug exclusivity, the impact of generic drugmakers taking advantage of patent expirations and new developments in medicine resulting in better, more advanced versions of older drugs. In addition, J&J has the advantage over healthcare rivals of also deriving a good chunk of revenue from its consumer products division.

Why it Matters: Like its drug-coated stent, J&J has the benefit of being first to market with its earnings report. What the company says about the first-quarter, but especially the rest of 2004, as well as how it sees the global market for its products, will be seen as a proxy for the sector.

First Call forecast: 80 cents a share, versus 69 cents a year earlier.

Intel, Tuesday p.m.

Intel (INTC: Research, Estimates) tops a busy week of earnings reports for the semiconductor sector. Rivals Advanced Micro Devices (AMD: Research, Estimates) and Texas Instruments (TXN: Research, Estimates) will also be unveiling their latest quarterly results. So will chip equipment firms Novellus Systems (NVLS: Research, Estimates) and Lam Research (LRCX: Research, Estimates).

But Intel will be the most closely watched chip company. Intel disappointed investors with a less-than-stellar mid-quarter update last month, stoking fears that a corporate pickup in demand for tech hardware might not be as strong as investors had expected.

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Intel, which generates the majority of its revenues from sales of microprocessors used in personal computers and servers, should post a sequential decline in sales from the fourth quarter. That's typical since the first quarter is seasonally weak. So investors are hoping that Intel will give some indication that business will strengthen as the year progresses.

In addition, Intel is facing tougher competition from AMD lately. AMD beat Intel to the market with more advanced 64-bit chips for PCs. Investors will be looking for some more information about how Intel intends to fight AMD in the 64-bit chip market.

Why it matters: The mantra for many tech bulls going into 2004 was that big businesses would finally need to upgrade aging desktops, laptops and servers. If Intel boosts its second-quarter sales guidance, then that would be interpreted as a sign that the bulls are right.

Good news from Intel would probably boost other chip manufacturers, hardware companies like Hewlett-Packard (HPQ: Research, Estimates), Dell (DELL: Research, Estimates), and IBM (IBM: Research, Estimates), and companies that sell semiconductor equipment and tools to Intel, such as Applied Materials (AMAT: Research, Estimates). But a tepid outlook from Intel could send shivers all the way down the tech food chain.

First Call forecast: 27 cents a share, versus 14 cents a year ago.

Delta Air Lines, Wednesday a.m.

No stock on the S&P 500 lost more ground in the first quarter than Delta (DAL: Research, Estimates), which saw its already battered shares lose nearly a third of their value. The airline twice gave guidance during the quarter that upped the forecasted loss for the quarter.

The current guidance -- a loss of more than $400 million -- is still expected to be better than the loss in the year-earlier period. But it may be double the $207 million loss excluding special items it reported in the fourth quarter, when its loss was worse than forecasts.

The rising red ink comes despite much stronger air traffic than a year earlier, when concerns about the start of the war in Iraq depressed demand for flying. Miles flown by paying passengers at Delta increased 6 percent in the quarter, and the percentage of seats filed increased by 1.7 percentage points. Much of the increased loss forecast is due to rising fuel prices, the No. 2 cost for the nation's airlines behind labor. Concern over rising fuel prices has driven down the forecasts for just about all the major airlines.

Why it matters: Delta, the nation's No. 3 carrier, is the first of the major airlines to report first quarter results. No. 5 Continental Airlines, the most profitable of the non-discount carriers, and No. 6 Southwest Airlines, the largest discount airline and the nation's most profitable carrier, are due to report results Thursday. This year was supposed to be the year that many major airlines were finally able to return to profitability, but with fuel prices on the rise, profits may have wait until 2005 or later at many carriers.

Analysts will be looking for information about how each of the airlines is positioned with long-term fuel contracts to ride out the expected spike in fuel prices this summer, a key period for airline profitability. Airlines not protected from further fuel hikes will likely be punished further by investors.

First Call forecast: A loss of $2.95 a share, versus a loss of $3.49 a share a year ago

Bank of America, Wednesday a.m.; Citigroup, Thursday a.m.

Financials move front and center next week, with a slew of big-name banks reporting their earnings. Judging by analysts’ expectations and already-released results -- from Wall Street brokerages such as Lehman Bros. (LEH: Research, Estimates) and more traditional names such as SunTrust Banks (STI: Research, Estimates) -- quarterly earnings should be strong.

Analysts have recently raised estimates on next week’s biggest banks to report -- Bank of America (BAC: Research, Estimates) and Citigroup (C: Research, Estimates), predicting that, much like SunTrust Banks last Thursday, the group will continue to benefit from an improving economy, consumer confidence, higher fee income due to growth in both bond and stock trading, revenue from mergers and new IPOs, as well as a decline in bad loans.

Citigroup is the king of the hill and with the breadth of its business so huge, what it has to say about it has ramifications for the rest of the financial sector.

In terms of other issues, Bank of America just completed its $47 billion purchase of FleetBoston Financial and announced plans to cut jobs as part of a cost-cutting initiative. Investors will be looking for more detailed information about other cost-cutting measures the bank may now be planning as a result of the merger, and how the merger will impact sales and earnings. The firm is also more dependent on its mortgage business than Citigroup and with interest rates set to rise, it will need to clarify how this will impact its results.

Why they matter: The outlook for corporate lending remains pretty blah. What Citigroup and Bank of America, the two biggest in the sector, have to say about this segment of their business -- as well as how they are positioning themselves for the rise in interest rates in the second half of the year -- has broad implications for the rest of the industry.

The strength or weakness of the financial sector is tied to the strength or weakness of the economy. After a period of slowing economic growth, ultra-bullish results and forecasts from the financial sector would seem to confirm what the sudden jump in March payrolls implied -- that the economic recovery is speeding up again.

First Call forecasts: Bank of America, $1.80 versus $1.59 a year earlier; Citigroup, 94 cents, versus 79 cents a year earlier.

Apple, Wednesday p.m.

It's been a bit of a rocky year for large tech stocks but you wouldn't know that from looking at Apple (AAPL: Research, Estimates)'s performance: shares of the iPod maker are up 27 percent so far in 2004. And that's on top of a nearly 50 percent gain last year.

Investors clearly have fallen in love with Steve Jobs and Apple once again thanks to the success of the iPod and its younger sibling, the iPod mini. Apple has so far stayed ahead of competitors such as Dell (DELL: Research, Estimates) and Samsung in the portable music device market.

And Apple's iTunes online music store remains the top source for downloads even though that market is growing increasingly cluttered as well. Roxio (ROXI: Research, Estimates) relaunched Napster as a legal music service last year. And in late March, retail king Wal-Mart Stores (WMT: Research, Estimates) unveiled an online music store that sells songs for 88 cents a download, 11 cents less than on iTunes.

Why it doesn't matter: Apple may be the undisputed heavyweight champ of online music. But its market share in the computer business, which still accounts for nearly two-thirds of the company's total sales, remains Hobbit-like small.

Apple is clearly an innovative and cool company but in the grand scheme of things, its results are only significant for Mac junkies and/or Apple shareholders. Investors looking for clues about what's happening in the broader tech world would be better off digging through the reports from Intel and IBM.

First Call forecast: 10 cents a share, versus 4 cents a year ago.

IBM, Thursday p.m.

IBM (IBM: Research, Estimates) may seem stodgy. It's in the Dow and pays a dividend after all. But when it comes to tech trends, IBM is actually fairly cutting edge.

The company has embraced the open source operating system known as Linux but continues to be a supporter of Microsoft (MSFT: Research, Estimates)'s Windows as well. That's helped IBM maintain its market share lead in the world of servers, networked computers used by businesses, big and small. In fact, IBM increased its lead in the server market over #2 Hewlett-Packard in the fourth quarter.

IBM also announced Wednesday that it was buying Daksh, one of India's largest outsourcing firms. While that move may be unpopular with politicians and others clamoring about the loss of U.S. jobs to overseas markets, the acquisition is a shrewd move by Big Blue to bolster its growing consulting and services business.

That's important because there have been some concerns about tough pricing pressures in the services business lately. So Wall Street will probably closely scrutinize the sales and profit figures for this unit.

IBM is facing competition from traditional consulting firms such as Computer Sciences (CSC: Research, Estimates), EDS (EDS: Research, Estimates) and Accenture (ACN: Research, Estimates). But HP is rapidly gaining ground in tech services as well.

Why it matters: It's Big. It's Blue. What more should we say? IBM makes and sells just about everything tech related that you could imagine. Chips? Yup. Hardware? How can you miss all those TV commercials for ThinkPads. Software? That's IBM's most profitable business. And of course, IBM is a huge player in the tech consulting market. The services division is now IBM's largest in terms of revenues.

So IBM's results will say something important about every sub-sector of tech...and also give one of the clearest indications of how corporate demand for tech is picking up worldwide. Nearly 60 percent of IBM's sales in the fourth quarter came from outside the Americas.

First Call forecast: 93 cents a share, versus 79 cents a year ago.

Nokia, Friday a.m.

Well, there's no longer any mystery about how Nokia (NOK: Research, Estimates) did in the first quarter. The company's surprising sales and earnings warning on Tuesday sent Nokia bulls running for cover.

Still, it was encouraging to note that Nokia did not say demand for cell phones was weak. The company did report a 19 percent increase in the amount of cell phones shipped, after all. It simply was not doing a good job of selling higher-priced (i.e. more profitable) models and indicated that it lost some market share in this area.

So it's probably premature to say that the consumer has lost his appetite for fancy phones just because of Nokia's no-no. Instead, investors will have to focus on Nokia's second quarter guidance, which is now even more crucial given the first quarter miss.

Why it matters: Will Nokia's sales improve in the months ahead? If so, that's probably going to be viewed as good news for other makers of cell phones as well as telecom equipment suppliers. Investors will forgive Nokia for this slight hiccup.

If Nokia issues a gloomy outlook, the devil will be in the details. It could be that Nokia is simply losing market share to rivals such as Samsung after years at the top. That's not the end of the world, from a macro point of view. But if the company indicates that overall demand is weakening, then that might be a sign that telecom is in for another tough year.

First Call forecast: 22 cents, versus 18 cents a year ago.  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.