Earnings Buzz: Things to Know About Q4 Earnings Season

Alcoa Inc (AA) is set to report its financial results for the fourth quarter of 2014 after the closing bell on Monday, January 12 and that marks the unofficial beginning of earnings season.

As a whole, Wall Street expect companies in the S&P 500 to report earnings growth of 1.1% from a year earlier in the fourth quarter, according to FactSet. That would be the worst rate of growth since the third quarter of 2012, when earnings were down 1%. Revenue at S&P 500 companies will see an increase of 1.1% from a year earlier in the fourth quarter, its worst rise in a year.

If we exclude energy from forecasts for the S&P 500, which has been hit by the slump in the price of oil, the benchmark sees almost 3.6% profit growth, significantly lower from the 5.2% average growth rate for earnings of all S&P 500 companies over the past eight quarters, according to FactSet.

The weakness in fourth-quarter earnings brings no surprise as much of the blame goes to energy companies, whose earnings will drop 19.1% for the quarter in the wake of oil selloff.

“This quarter is not going to be the trough of profitability,” said Pavel Molchanov, an analyst with Raymond James. Rather, deeper losses are likely to surface down the road, when companies report first-quarter or second-quarter earnings.

Schlumberger Ltd. (SLB) on Thursday will be the first among oil-field services companies to release its quarterly results.

On the other hand, the stregthening dollar is expected to put a dent on the businesses of U.S. exporters whose products have become less competitively priced. Sluggish economic growth in other parts of the world is also pressuring profits for U.S. multinationals.

“There are a fair amount of headwinds that are beginning to really start to blow hard in the face of corporate America,” said Burt White, chief investment officer for broker-dealer LPL Financial. But Mr. White also noted that the projected profit increases are “pretty good given the situation.”

Mr. White expects transportation stocks to benefit from falling fuel costs.

And at short-term horizons, lower prices at the gas pump will help increase earnings among retailers and other companies whose sales go up when consumers have more money to spend.

“What you’re going to see is good holiday sales data from the retailers, and with gas prices [falling] even further since then, that benefit is likely to carry into” 2015, said Michael Scanlon, senior investment analyst at John Hancock Asset Management.

Big banks and other financial companies will kick off the real start to earnings season, when the they begin to report on Wednesday. Financial companies are likely to a see a 1.7% decrease in earnings and have blindsided investors with massive legal charges.

“The thought was that they would be done with the write-downs and all of that by now, but it’s been a slow process working out,” said Curtis Holden, senior investment officer at Tanglewood Wealth Management, which manages $850 million out of Houston. “That’s been a big drag on the earnings.”

Wells Fargo & Co. (WFC) and J.P. Morgan Chase & Co. (JPM) will dominate U.S. bank earnings season on Wednesday, followed by Bank of America Corp. and Citigroup Inc. on Thursday, and Goldman Sachs Group Inc. on Friday.

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