Company earnings warnings near record levels as Q1

Company earnings warnings near record levels as Q1 reports loom
Ahead of first-quarter earnings season, Corporate America’s outlook is holding around its most pessimistic levels ever.

Another way of looking at it, though, is that executives could be continuing to push the envelope in the low-ball game. In other words, they’re going to great lengths to underpromise and manage expectations.

According to John Butters, senior earnings analyst at FactSet, 93 out of the 111 companies in the S&P 500 that have issued an earnings outlook for the first quarter have guided below Wall Street’s consensus estimate. That’s the second-highest number of companies issuing warnings since FactSet began tracking guidance data in 2006. The highest number came just three months ago — for 2013’s fourth quarter.

The market actually has reacted positively to the negative preannouncements, Butters said in a note on Monday.

“For the 93 companies that have issued negative EPS guidance for Q1 2014 to date, the average price change (2 days before the guidance was issued through 2 days after the guidance was issued) was +0.2%,” he wrote.

At the sector level, a record number of companies in the consumer discretionary and industrials sectors have issued negative quarterly EPS guidance, according to Butters. ETFs for betting on those sectors are the Consumer Discretionary Select Sector SPDR (XLY) and the Industrial Select Sector SPDR (XLI).

Former Dow component Alcoa AA -0.08% traditionally provides the unofficial kickoff for earnings season. The aluminum producer’s report is expected on April 9.