Earnings On Deck: Only Nine Companies Will Matter

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Analysts assume third quarter earnings for the companies in the S&P 500 will be bad. But, looking at the number which is the average of all firms in the index is misleading. The market will be watching the numbers for and forecasts from nine companies. They are likley to drive the stock indexes up or down more than numbers from almost any other firms. They are, in essence, all that counts in determining how badly the recession is taking a toll on American business.

Google (GOOG) will be the proxy for the online world, all e-commerce, text and display advertising, and the extent to which an industry which has enjoyed extraordinary revenue growth can keep it up. Its numbers will also say a good deal about the strength or weakness, of media and advertiser firms. Analysts expect to see the company grow at 35% or so, and keep its costs down. If that does not happen, Google drags down one most important engines of the economy. Its numbers could hit companies from Time Warner (TWX) to Yahoo! (YHOO) to Amazon (AMZN)

Micrososft (MSFT) is so large that it is the only other important tech bellwether. It has a vast enterprise business, a huge server software operation, and an operating system which runs over 90% of the world’s PCs. If it signals a substantial slowing of the growth in its core business, that ripples out to almost every other software and IT hardware firm both in the US and abroad. Dell (DELL), Intel (INTC), and all their peers move as Microsoft moves

Procter & Gamble (PG) is supposed to be recession-proof. It sells necessities from soap to razors. The market’s theory about the company is that it will dodge even a sharp drop in GDP. If P&G posts tough numbers and says it has poor expectations for next year, the entire sector for consumer goods will take a significant hit. The numbers will hurt or help companies such as J&J (JNJ), Colgate (CL), and a number or retailers.

Exxon Mobil (XOM) will show the market how badly the falling price of oil has compromised earnings at oil firms and operations which supply the tools and consulting for exploration and production. The company will also post forecasts based on the price of oil going into 2009. If Exxon warns, a dozen of the largest market cap stocks in the US will be pounded. Chevron (CVX) to Halliburton (HAL) will be also be hurt.

Citigroup (C) is viewed as the weakest of the large US banks and thus the most susceptible to more huge write-offs. With housing prices still dropping and mortgage-based paper probably falling in value, Citi is a nearly perfect indication of how bad that part of the financial world will get. Its vast network of retail branches, credit cards accounts, and auto loans will say a great deal about how the consumer is holding up. Its commercial and investment banks should give an indication of the value of LBO loans and whether there are significant defaults on loans to corporations. The waves from this could hit Morgan Stanley (MS), Bank of America (BAC) and most other firms in the sector.

Ford’s (F) earnings figures have an effect for hundreds of companies beyond the car company. GM (GM) is only one of those. Auto suppliers to steel and aluminum firms rely on Ford. So does a great deal of the transportation industry and the part of the financial sector where earnings are driven by consumer credit. If the Ford forecast for 2009 is poor, the question of whether American car companies are viable will be raised again.

Pfizer’s (PFE) share price is based on the assumption that the public needs pharma products if people have money or not. Drugs which are critical to health are critical to people even if they are barely hanging on financially. If Pfizer’s numbers are weak they pull down Big Pharma, biotech, hospital, and medical supply company shares. Shareholders from companies as diverse as Genentech (DNA) and Bristol-Myers (BMY) will watch these numbers.

Verizon (VZ) earnings cover three sectors. One is the cellular market, which has seen very little slowing of growth. If those numbers are running bad, the ripple go beyond carriers to handset companies, chip suppliers and companies which make infrastructure for telecom. The Verizon landline business will tell a great deal about whether the average consumer is shutting off his phone service due to a hard economy. Verizon’s new fiber-to-the-home TV and broadband services will effect cable, telecom, and telecom suppliers. From AT&T (T) to Comcast (CMCSA) to Oracle, Verizon has an impact

Wal-Mart (WMT) is not only the largest company in the US. Its earnings are watched by smaller retailers, suppliers, and manufacturers in China. If the firm warns that its same store sales and revenues will fall off in the US and overseas companies from Sears (SHLD) to Sony (SNE) will feel the impact.

GE (GE) has already reported. It met expectations and was rewarded. The rest of the parade needs to do as well, or the market will sell off again.

Douglas A. McIntyre