NEW YORK (AP) Americans so obsessed with the war in Iraq should beware of companies trying to use it to camouflage bad news at home.
Already, investors have let war solely decide how they trade, so they've largely ignored all the recent cuts in quarterly profit estimates and corporate warnings about missed earnings forecasts.
But now with earnings season about to get under way, they have to watch out for companies that try to capitalize on investors' preoccupation with war to bury weakness for the quarter and the coming year.
This may be the perfect time for companies to hide a hiccup here and there, since investors are so caught up with their worries over war,'' said Alan Ackerman, executive vice president at Fahnestock & Co.
Wall Street analysts now expect earnings in the Standard & Poor's 500 stock index to rise 8.4 percent in the quarter, down from expectations of 11.7 percent on Jan. 1, according to Thomson First Call.
And while that may still sound good at a time when the country is at war and the economy is struggling to rebound, the projected growth has been bolstered by the expected super-sized profit gains which analysts believe could be about 168 percent for the energy sector.
Take energy out, and year-over-year quarterly earnings are only estimated to rise 1.9 percent. That's way down from the 8.4 percent predicted in nonenergy sectors at the start of the year, Thomson First Call said.
As high energy prices have lingered longer than the consensus expected, there has been a shift in the composition of earnings favoring energy producers and hurting energy consumers,'' said Edward Keon, a quantitative strategist at Prudential Financial.
Expected revenues aren't likely to fare much better. Sales growth is only supposed to rise about 2.3 percent in the S&P 500 for the quarter. Even with the energy sector included, that would be the slowest pace in the last year and a big drop from the 6.5 percent fourth-quarter gain.
And the analysts, when revising their estimates, are taking their cues from companies. For every company that says it will top earnings expectations, about three companies say they will fall short. That's the worst level since the third quarter of 2001, when the U.S. economy was in the depths of a recession, Thomson First Call said.
Among the many companies that have warned of disappointing earnings and growth: Ethan Allen, Nordstrom and Union Pacific.
All this potentially bad news hasn't fazed investors much, and who knows if it will once the actual earnings figures are reported.
That would be a big switch from earnings seasons over the last year. In July, October and January, stock markets tumbled due in part to weaker-than-expected earnings.
But while investors only have war in view right now, they should keep an eye on earnings.
Analysts say companies might try to blame war for weak earnings, even if that doesn't explain everything wrong with the business.
And they might also dump extra charges or costs into this quarter because they think investors aren't paying close attention. That could inflate results later in the year, when investors are again more focused.
Companies may also use their earnings reports this quarter to update investors on their outlooks for the rest of the year.
Investors should be trying to ascertain what will happen to earnings later this year, when the war is presumably over,'' Chuck Hill, director of research at Thomson First Call, said in a note to clients.
Investors may be consumed by the war, but the war shouldn't be all consuming.
Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org
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