It is beginning to feel like the gods are frowning on U.S. businesses. Companies are citing war, disease and bad weather as reasons why their second-quarter earnings will fall short.
But investors and stock market strategists are not convinced that a plague has hit Wall Street, though some question whether optimism for an economic recovery came too soon.
In a climate of closer shareholder scrutiny, companies may just be using the elements and world events as excuses for their own mistakes.
"They tend to put the blame for earnings disappointments wherever they can," said Alan Ackerman, global market strategist at Fahnestock & Co. "But somehow management continues to remain somewhat blameless."
"Investors are beginning to lose patience with the plethora of excuses," he said. "We are in the early stages of earnings warnings, and clearly the stage appears to be set for more nervousness and concern on corporate performance."
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FACTBOX-SARS Impact on U.S. Companies
The bad news has cut across sectors, from cellular phone producers hit by the respiratory ailment SARS to sandal-makers and charcoal-sellers soaked by unseasonably heavy rainfall.
In the latest wave of announcements -- during what is often termed the corporate "confessional" period close to a quarter's end -- photographic film producer Eastman Kodak slashed its earnings forecast by more than half.
Kodak gave at least seven reasons for the reduced outlook but highlighted lower sales in Asia due to the Severe Acute Respiratory Syndrome outbreak.
The New York Times Co. also provided a broad range of reasons when it announced profits would fall short, including higher costs from covering the war in Iraq, a drop in travel-related advertising due to SARS, and weak U.S. economics affecting the retail and job markets.
Clorox Co. attributed its slightly dimmer outlook to an unusually wet spring season that has cut demand for its charcoal and auto products. Payless ShoeSource Inc. also blamed an expected drop in profits on the rain that dampened sales of sandals.
Last week, companies such as Motorola Inc., the world's No. 2 mobile phone company, and Texas Instruments also issued SARS-related earnings warnings.
HEALTHY SKEPTICISM
Investors said that in some cases, longer-term problems were being masked.
"People are using SARS to hide behind," said Henry Asher, president of money-management firm Northstar Group.
"For Kodak, SARS may be a problem ... if people don't travel they don't take as many pictures," he said. "But the impact of digital photography (on Kodak sales) is much more significant than a virus."
And it isn't only Kodak that might have deeper questions to address, analysts said.
For example, increasing competition from Chinese rivals is likely to threaten Motorola more than a potentially temporary hit from SARS. And Payless may have lost out this season with a weaker fashion selection than rival shoe retailers.
Individual stocks were hit by the warnings. Kodak shares tumbled more than 10 percent to close at $28.77, New York Times stock slid 6 percent to $45.63, Clorox fell 6.5 percent to $42.29, and Payless lost 3.6 percent to $12.15.
But in a sign that investors' overall optimism is not yet badly dented, the broader stock market was little changed, with the Standard & Poor's 500 Index nearly flat at 1,010.09.
"The overall market itself has such momentum it's not likely that we're going to see a huge tumble over a couple of companies," said Paul Cherney, chief market analyst at S&P MarketScope.
Joe Cooper, a research analyst at Thomson First Call, said projections of earnings shortfalls were in line with the average rate.
Of 831 companies that have issued second-quarter forecasts, 51 percent predicted disappointing results and 26 percent gave positive guidance. The ratio of negative to positive, 2 to 1, is in line with the historical average, he said.
At this point in the last quarter, the ratio stood at 2.6 to 1, he said. Last year at this time, the ratio was only 1.2 to 1, but in that instance forecasts had been slashed well in advance of the quarter, Cooper said.
The peak two weeks for earnings preannouncements begins next Monday, he said.
But investors and stock market strategists are not convinced that a plague has hit Wall Street, though some question whether optimism for an economic recovery came too soon.
In a climate of closer shareholder scrutiny, companies may just be using the elements and world events as excuses for their own mistakes.
"They tend to put the blame for earnings disappointments wherever they can," said Alan Ackerman, global market strategist at Fahnestock & Co. "But somehow management continues to remain somewhat blameless."
"Investors are beginning to lose patience with the plethora of excuses," he said. "We are in the early stages of earnings warnings, and clearly the stage appears to be set for more nervousness and concern on corporate performance."
RELATED ARTICLES
FACTBOX-SARS Impact on U.S. Companies
The bad news has cut across sectors, from cellular phone producers hit by the respiratory ailment SARS to sandal-makers and charcoal-sellers soaked by unseasonably heavy rainfall.
In the latest wave of announcements -- during what is often termed the corporate "confessional" period close to a quarter's end -- photographic film producer Eastman Kodak slashed its earnings forecast by more than half.
Kodak gave at least seven reasons for the reduced outlook but highlighted lower sales in Asia due to the Severe Acute Respiratory Syndrome outbreak.
The New York Times Co. also provided a broad range of reasons when it announced profits would fall short, including higher costs from covering the war in Iraq, a drop in travel-related advertising due to SARS, and weak U.S. economics affecting the retail and job markets.
Clorox Co. attributed its slightly dimmer outlook to an unusually wet spring season that has cut demand for its charcoal and auto products. Payless ShoeSource Inc. also blamed an expected drop in profits on the rain that dampened sales of sandals.
Last week, companies such as Motorola Inc., the world's No. 2 mobile phone company, and Texas Instruments also issued SARS-related earnings warnings.
HEALTHY SKEPTICISM
Investors said that in some cases, longer-term problems were being masked.
"People are using SARS to hide behind," said Henry Asher, president of money-management firm Northstar Group.
"For Kodak, SARS may be a problem ... if people don't travel they don't take as many pictures," he said. "But the impact of digital photography (on Kodak sales) is much more significant than a virus."
And it isn't only Kodak that might have deeper questions to address, analysts said.
For example, increasing competition from Chinese rivals is likely to threaten Motorola more than a potentially temporary hit from SARS. And Payless may have lost out this season with a weaker fashion selection than rival shoe retailers.
Individual stocks were hit by the warnings. Kodak shares tumbled more than 10 percent to close at $28.77, New York Times stock slid 6 percent to $45.63, Clorox fell 6.5 percent to $42.29, and Payless lost 3.6 percent to $12.15.
But in a sign that investors' overall optimism is not yet badly dented, the broader stock market was little changed, with the Standard & Poor's 500 Index nearly flat at 1,010.09.
"The overall market itself has such momentum it's not likely that we're going to see a huge tumble over a couple of companies," said Paul Cherney, chief market analyst at S&P MarketScope.
Joe Cooper, a research analyst at Thomson First Call, said projections of earnings shortfalls were in line with the average rate.
Of 831 companies that have issued second-quarter forecasts, 51 percent predicted disappointing results and 26 percent gave positive guidance. The ratio of negative to positive, 2 to 1, is in line with the historical average, he said.
At this point in the last quarter, the ratio stood at 2.6 to 1, he said. Last year at this time, the ratio was only 1.2 to 1, but in that instance forecasts had been slashed well in advance of the quarter, Cooper said.
The peak two weeks for earnings preannouncements begins next Monday, he said.
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