July 8 - Earnings estimates have been coming down, and as reporting season kicks in with Alcoa releasing mixed results, there are increasing concerns about top line sales growth. Bobbi Rebell reports.
The top story this earnings season will likely be the top line- revenues. The early numbers set the stage. While the majority of companies have been beating on earnings per share, far fewer have done as well on revenue. Thomson Reuters Research Analyst Greg Harrison: SOUNDBITE: GREG HARRISON, CORPORATE EARNINGS RESEARCH ANALYST, THOMSON REUTERS (ENGLISH) SAYING: "Without strong revenue growth it's difficult to maintain earnings growth. So, companies have been able to do that so far through cost cutting, restructuring, different initiatives to improve their margins. But there is probably a limit to how far they can do that without any top line growth." But Goldman Sachs' Abby Joseph Cohen says U.S. companies are in a good place: SOUNDBITE: ABBY JOSEPH COHEN, PRESIDENT, GLOBAL MARKETS INSTITUTE AND SENIOR INVESTMENT STRATEGIST, GOLDMAN SACHS (ENGLISH) SAYING: "It will in fact be hard for some companies to grow their profit margins from current levels but those profit margins are at good levels and return on equity overall in the S&P 500 is also reasonably good." Overall quarterly earnings growth estimates have been coming down - now less than 3 percent- far below the more than 6 percent expected when the quarter began. The big winners? Telecom- in part because of improvements at Sprint - and Financials. They are benefitting from the improving housing market- as well as trading volumes in the stock market. But high tech will have a tough time in part because of the slowing PC market- as will, materials. SOUNDBITE: GREG HARRISON, CORPORATE EARNINGS RESEARCH ANALYST, THOMSON REUTERS (ENGLISH) SAYING: "That's just a reflection of slowing economic activity worldwide. We've seen China has had a huge demand for raw materials over the last several years. That is slowing down, depressing prices of materials. And we think that sector- we see the steel industry expected to see an 81 percent decline in earnings."