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S&P earnings estimates at 2-year low

S&P earnings estimates at 2-year low
Growth rate on decline since last year, report says
By Dan Gallagher, MarketWatch
Last Update: 6:18 PM ET July 5, 2005

SAN FRANCISCO (MarketWatch) -- Wall Street has subdued expectations heading into the second-quarter earnings season, with pre-report growth estimates at their lowest point in two years.

When the quarter ended last Thursday, the estimated earnings growth rate for companies in the S&P 500 Index stood at 7.4%, according to consensus data from Thomson Financial. That's the lowest pre-report estimate since the second period of 2003, when S&P 500 firms were expected to report earnings growth of 7%.

Actual results will likely be higher, if past performance is any indication. Results have outpaced pre-report estimates in every period since the fourth quarter of 2002, according to Thomson data.

For the first quarter, earnings grew at an actual rate of 13.9% -- far ahead of the 7.6% growth rate predicted at the beginning of the period.

Looked at another way, though, it's clear that earnings growth is slowing. Last quarter's final growth rate was 29% lower than in the previous period and the lowest since the second quarter of 2003, when S&P 500 earnings grew a scant 9.5%.

Also, the second-quarter growth rate has fallen versus the first quarter's in each of the past three years.

This week will see two notable earnings reports to kick off the second-quarter reporting season. Alcoa (AA: news, chart, profile) -- a component of both the S&P and the Dow Jones Industrial Average -- is scheduled to post earnings after the close of the market Thursday.

Pepsi Bottling Group (PBG: news, chart, profile) is slated to report second-quarter results that morning.

Watch for pre-announcements

In a report, Thomson Financial warned investors that a wave of pre-announcements would likely emerge over the next couple of weeks, and these reports may contain some key indicators.

Those pre-announcements would be "important to watch, as they may discuss key factors such as energy prices, commodity prices, and foreign exchange rates that will have a direct impact on corporate earnings and growth rates," the Thomson report read.

So far, many of those pre-announcements have been negative. For the S&P 500 group, more than 60% of the pre-announcements for the second quarter have been negative, according to Thomson data.

That makes for a negative-to-positive ratio of 2.6 to 1 -- the highest in eight quarters.

Notable earnings warnings last week came from International Paper (IP: news, chart, profile) , CBRL Group (CBRL: news, chart, profile) and Pixar Animation Studios (PIXR: news, chart, profile) .


LINK: http://www.marketwatch.com/news/story.asp?guid=%7BAC97848C%2DF546%2D4C62%2DBBBA%2D8F8A7FF99624%7D&am...