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2Q mea culpas multiply
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June 1, 1998: 6:56 p.m. ET
Warnings of lower-than-expected 2Q earnings look more serious than usual
From CNNfn Correspondent Katharine Barrett
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NEW YORK (CNNfn) - It's a seasonal tradition -- well before the sun sets on the second quarter companies begin to warn Wall Street that their three-month profits will not measure up to expectations.
A few own up to better-than-predicted returns. But so far this spring, the confessions look more serious than usual.
"Well, it's still the beginning of the so-called confession season, but it is a little disturbing in that we're running somewhat higher than the normal number of pre-announcements that we would expect this early. And we're running a little bit more negative than we normally do at this early stage," says Chuck Hill, director of research at First Call.
Of the 118 companies that have already given early earnings guidance, 59 percent have offered bad news.
Microchip maker National Semiconductor (NSM) and chip-equipment company Applied Materials (AMAT) were among the many to warn that Asia will pinch their profits. Even Callaway Golf (ELY) warned its earnings will suffer because it is selling fewer clubs in Asia. Union Pacific's (UNP) problems are home-grown -- lawsuits from customers angry about shipping delays will cause a loss.
And this bad news comes on top of the fact that predictions for second-quarter growth already were cut in half in January.
The consensus now is that S&P 500 companies will deliver earnings growth of 5.7 percent this quarter. Some expect even less.
"This will be … as bad if not worse than what we saw in the first and fourth quarters of '97. We're looking for about 3 percent S&P 500 growth right now, and the consensus is looking for about 6 percent or better. So I think anxiety levels will remain in place for a couple of weeks until we get further through this confession period," says Thomas Galvin, chief investment officer of Donaldson, Lufkin & Jenrette.
Confession season -- and the worries it creates -- could last another month. But even Galvin is unfazed: He expects a dramatic pick-up in earnings power -- and stock prices -- in six to nine months. 
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