With 94% of S&P500 companies having reported, 1Q08 operating earnings are down -25.6% from the same time last year. That compares with an estimate of 9.1% six months ago and -5.8% just one month ago. 2Q08 is currently forecast to show an earnings decline of -5.4%, no doubt the actual will be much worse.
Analysts continue to have rosy views of the third and fourth quarters. As mentioned here before, comps for financial companies will be much easier, however estimates of 16.8% growth for 3Q08 and a ridiculous 68.9% for 4Q08 need to come down considerably.
The much worse than expected first quarter has dragged down expected earnings growth in FY08 to 8.4%. Just a month ago it was estimated at more than twice that. However I believe the current estimate is still wildly optimistic and that earnings growth will be negative for the full year.
The market seems content for now to look beyond the first half of 2008 and assume the worst is behind us. However high expectations for a second half rebound in both earnings and economic growth are setting the scene for disappointment if, as I suspect, the data does not live up to expectations.
Monday, 19 May 2008