Q1-2012 Earnings Season Outlook, Lowered Expectations (AA, SNDK, CSCO, GE, JPM, WMT, LUV, IBM, T, VZ, BAC, MCD, AAPL)

Source: Jon Ogg
Earnings season is almost upon us for the first quarter of 2012.  There is some growing caution over company expectations on the heels of a massive rally where the DJIA rose 8.1% and the S&P 500 rose 11.9% in the first quarter alone.  We have taken a look at internal corporate commentary and external tempering of expectations on several DJIA components and also other industry leaders to get to the bottom of what to expect this earnings season.

Our review focuses on fresh tempering of expectations from Alcoa, Inc. (NYSE: AA), and caution from SanDisk Corporation (NASDAQ: SNDK) and Cisco Systems, Inc. (NASDAQ: CSCO).  There are also more very fresh concerns regarding the following companies: General Electric Co. (NYSE: GE); J.P. Morgan Chase & Co. (NYSE: JPM); Wal-Mart Stores Inc. (NYSE: WMT); Southwest Airlines Co. (NYSE: LUV); International Business Machines Corporation (NYSE: IBM); AT&T, Inc. (NYSE: T) and Verizon Communications, Inc. (NYSE: VZ); Bank of America Corporation (NYSE: BAC); and also McDonald’s Corporation (NYSE: MCD).

This is not an effort to move towards the panic button, but it is also full of evidence and inference showing that things might be a bit tempered compared to estimates of even two weeks ago.  This tempering may still not kill the expectation that the DJIA will see 14,000 or higher this year.

Alcoa, Inc. (NYSE: AA) has taken a very interesting path here ahead of earnings season.  The company is set to report earnings next week and it is generally the first DJIA component to report earnings each quarter.  For better or worse, that means that investors try to use Alcoa as a benchmark for all major economic companies each earnings season.  The issue goes far beyond Alcoa and far beyond just the base economy companies as one last tempering of earnings expectations for the first quarter of 2012.

While Alcoa is the current focus, we wanted to identify what other DJIA components and/or what other sector leaders have said ahead of earnings season.  It may not be as cautious as many investors were braced for at the start of 2012, but it is far from positive and could act as a drag on the expectations that the market will keep rising.

If you tie in what flash memory maker SanDisk Corporation (NASDAQ: SNDK) warned of lower demand and lower pricing hurting sales and margins.  With it being the largest independent flash maker, this dimmed the hopes of the tech boom continuing and the drop was in all Apple Inc. (NASDAQ: AAPL) component suppliers.  Earlier this week came word from John Chambers of Cisco Systems, Inc. (NASDAQ: CSCO) that government spending was going to get worse before it gets better.

Another concern, which seems to be a lame call rather than an insightful call, came from Moody’s where the credit ratings agency issued a formal downgrade on General Electric Co. (NYSE: GE).  We warned when the ‘negative review” came up last month that the call was unwarranted and/or very late because things have gotten better rather than worse.  We would only expect that this tempered estimates mildly and the company has done what it can to give the all-clear signal in recent weeks and months.

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