Quarterly earnings could be up year-over-year by the fourth quarter. A low threshold for improvement, as a result of last year's Q3 financial meltdown, could set the stage for the appearance of a recovery, but the ride from here to there will be a difficult one.
Data from Bloomberg and S&P suggests that profits for stocks comprising the S&P 500 Index may be down 21% next quarter. It's still a double-digit blow, but a better result than Q2's estimated 34% -- and far ahead of Q1's 60% year-over-year fall in profits. The driver of a recovery, however concealed by low expectations, is likely to be a combination of unemployment and consumer spending. Last month, we saw unemployment reach a 26-year high, putting obvious constraints on purchasing.
A 9.5% jump in the unemployment rate in June sent consumer confidence down. The United States lost 467,000 jobs in that month alone, bringing the total since December 2007 to 6 million. It's hard to say what this means for Q2, with earnings season starting on Wednesday with Alcoa (NYSE: AA), but layoffs, closings and other cost-cutting measures at the beginning of the year led nearly two-thirds of the S&P 500 Index companies to beat analyst earnings estimates. Again, low expectations were at play, but it's all a perception game.
Let's see how a few high-profile companies are expected to fare.
Tech
Google (NASDAQ: GOOG): Q2 could be the internet search and ad giant's second-slowest for profit growth since its IPO. But, CEO Erick Schmidt is calling the economy's bottom this summer (June 30, 2009, actually) and sees things getting better in a month ... that's a bit specific for a CEO prediction. Bravo!
Microsoft (NYSE: MSFT): Look for a second consecutive fall in sales for the software giant, according to a Bloomberg survey of 22 analysts. Before Q1, Microsoft had never seen a quarterly sales drop. Now, the company knows they're ugly. And, they may learn this again.
Nokia (NYSE: NOK): Nobody makes more mobile handsets than this Finnish company, but market leadership won't stem a 67% fall in net income for Q2. Customers aren't upgrading their phones.
Auto
Look for losses from Japan's top three auto manufacturers: Toyota (NYSE: TM), Honda (NYSE: HMC), and Nissan (NASDAQ: NSANY). Don't worry, you won't have to look hard.
Ford (NYSE: F), on the other hand, is taking advantage of distressed rivals to increase its share of the market. It's still tough, but the losses are narrowing. Q2 losses may be only $718.3 million, much better than last year's $8.7 billion Q2 loss.
Airlines
The nine largest carriers in the United States together may post losses of $1 billion, almost double the original $600 million expectation. Across the country, 31,700 airline jobs have been lost and more than 500 planes grounded. Look for Delta Airlines (NYSE: DAL) and American Airlines (NYSE: AMR) to cut some routes after Labor Day.
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