Investors look ahead for quarterly reports
NEW YORK » Wall Street has entered the period that might be called the storm before the storm: warnings season.
With second-quarter profit reports scheduled to stream in starting in mid-July, investors are watching for profit warnings over the next few weeks. Though this season has been pretty mild so far -- more companies have issued upbeat guidance than warnings, noted Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. -- Wall Street is keeping a wary eye on the consumer discretionary sector.
The sector -- which includes industries that are most vulnerable to economic slowdowns, such as retail, autos and travel -- was the biggest laggard last quarter, posting a 6.63 percent decline in profit, according to Standard & Poor's data.
And so far this month, a few big consumer brands have issued outlooks that disappointed Wall Street:
Starbucks Corp. fell 3.9 percent Thursday after warning it might not reach the top of its profit outlook, and restaurant chain Cheesecake Factory Inc.'s stock dipped 7.1 percent Thursday after its second-quarter revenue estimate fell below the average analyst forecast.
On Monday, Wendy's International Inc.'s shares declined 3.7 percent when the country's No. 3 hamburger chain warned its full-year profit would fall short of Street expectations.
Earlier this month, Dean Foods Co. fell 4.3 percent and hit a 52-week low on June 12 after the nation's largest dairy company said its full-year profit would come in below forecasts. And on June 5, Bed Bath & Beyond Inc. fell 5.4 percent after the home furnishings retailer forecast earnings per share that fell under Street expectations.
"An awful lot of focus will be on retail in general," said Jonathan Armitage, head of U.S. large-cap stocks for Schroders Investment Management, noting that the performance of retail chains clues investors into the overall health of the consumer.
Consumer spending has ramifications for the broader economy, notably the tepid housing market, which has re-emerged as a worry in recent weeks as bond yields have soared and bumped up mortgage rates.
Many homebuilders who have missed expectations in prior quarters have stopped giving guidance, Battipaglia noted.
Investors will also be watching out for profit warnings in the technology sector. Earlier this year, ahead of the first-quarter earnings season, profit warnings from mobile phone company Motorola Inc. and chip maker RF Micro Devices Inc., gave the market a scare. Though the semiconductor portion of the technology sector has rebounded since then -- the Dow Jones U.S. Semiconductors Index has risen 2.37 percent over the past three months -- it is still lagging the broader stock market.
Right now, Standard & Poor's estimates second-quarter earnings will rise 5.74 percent compared to a year ago. If earnings beat the market's forecasts, the stock market could see big gains -- just as they did after the first quarter, when growth came in at 7.84 percent, according to S&P data, topping the initial estimate of about 4 percent. During the month of April, when most first-quarter earnings were announced, the Dow Jones industrial average surged 5.7 percent, recovering from a tumultuous February and March.