Earnings forecasts look less bright (Reuters)

NEW YORK (Reuters) – Prospects for corporate earnings are dimmer in the coming quarters -- even though reports so far this quarter have been relatively bright.

Third-quarter reports among the big names have been reasonably solid, with Google (GOOG.O), McDonald's (MCD.N) and others reporting strong results.

But, unless there's a turnaround in the outlook for the U.S. economy, the next few quarters may be less rosy.

Currently, the market is focused on Europe. Hope for a series of summits designed to find a way to solve the growing euro zone debt crisis buoyed the Standard & Poor's 500 index (.SPX) to a 1.1 percent gain for the week and put the index at the top of a recent range it has struggled to break through.

With so much focus on Europe, earnings -- even with most companies beating expectations -- have been given less of the spotlight.

At the same time, S&P 500 earnings forecasts for the fourth and first quarters have come down since the start of October, especially in the materials, energy and financial sectors, according to Thomson Reuters data.

"That's part of this fear factor that has gripped not only the marketplace but corporate America as well," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Much of what's driving worries about earnings is related to expectations for less demand from Europe and other parts of the world, including China, where indicators show growth is slowing.

The sovereign debt crisis in Europe has plagued markets for months, and the U.S. economy has been a worry, too, with the nation's high unemployment rate among the chief problems.

Much of the third-quarter profit strength stems from still-strong international revenue growth, according to a report from Thomson Reuters earnings analyst Jharonne Martis.

"There is still a dichotomy between robust earnings growth and global economic uncertainty," the report said.

Foreign sales total 30 percent on average for S&P 500 companies.

Of the 133 S&P 500 companies that have reported earnings to date, 68 percent have come in above expectations, above the long-term average, the Thomson Reuters data showed.

On next week's earnings agenda are results from more top S&P 500 names: Caterpillar (CAT.N), Coach (COH.N), Boeing (BA.N) and Procter & Gamble Co (PG.N) among others.

The data shows S&P 500 earnings are expected to have risen 14.7 percent in the third quarter from a year ago, compared with an October 3 estimate for 13.1 percent growth.

Projections for the fourth quarter are for growth of 12.5 percent -- down from an October 3 estimate of 15 percent -- and forecasts for the first quarter of 2012 are for growth of 7.6 percent -- down from an October 3 estimate of 10.2 percent.

WORRIES PRICED IN

Some analysts said the changes in earnings estimates may just be catching up to sentiment already priced into stocks.

If so, an improvement in the outlook would make the forecasts too low.

"If Europe does satisfy the markets (with a solution to the debt crisis), then I think these estimates will be proven wrong," Cardillo said.

As long as the U.S. economy doesn't fall back into recession, corporations can deliver profit growth, strategists argued.

Among next week's data is a report on U.S. economic growth on Thursday. U.S. gross domestic product likely grew at a 2.5 percent annual rate in the third quarter, according to a Reuters survey, a improvement from 1.3 percent in the second quarter.

"The general macroeconomic data in the U.S. continues to confirm a protracted, slow painful recovery but not a recession at this stage. And if it continues to maintain that however slow pace, on the upside the earnings should be supported by economic activity," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

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Earnings on deck as Europe eyed (Reuters)

NEW YORK (Reuters) – Investors tiring of the euro zone's debt crisis dragging the market all over the place are hoping to focus on something else next week -- earnings.

But will third-quarter results be enough to drive the S&P 500 higher? Or will Europe's woes get in the way?

The unofficial start of earnings season begins on Tuesday, when Dow component Alcoa Inc (AA.N) reports third-quarter results after the close of trading.

The earnings and guidance that may follow could give investors some clues on the health of the global economy, including any impact the euro-zone debt crisis has had and might continue to have on profits.

But even if earnings paint a rosier picture than anticipated, stocks may face a stiff test in climbing much further, as analysts pointed to the declining 50-day moving average as a key resistance point that could limit gains. That level now sits around 1,178.

This week's sharp gains were built on improved hopes that European officials will get a handle on the euro-zone debt crisis. That fed a massive bout of short-covering as those betting against stocks were forced to buy shares to avoid losing money.

The benchmark S&P 500 index (.SPX)(.INX) rose 2.1 percent for the week, buoyed by a 6 percent jump mid-week, as it appeared plans in the euro zone to get a grip on the debt crisis were moving forward. The region remains a wild card, which could cause any gains to quickly vanish.

"For the next three weeks, in this country, earnings will be the focus and the subplot is going to be Europe -- Europe is always going to be just under the surface," said Ken Polcari, managing director at ICAP Equities in New York.

"But if all of a sudden in the middle of next week, some catastrophe happens in Europe, the focus is immediately going to be headline driven and goes back to Europe."

Other companies expected to post quarterly results next week include PepsiCo Inc (PEP.N), tech giant Google Inc (GOOG.O), JPMorgan Chase & Co (JPM.N) and toy maker Mattel Inc (MAT.O).

KEEPING THE BAR LOW

Clouding the picture for profits is the fact that many earnings estimates have been trimmed by analysts in light of the turmoil in Europe, a staggering global economy and other events which resulted in a more cautious forecast.

"You've got to remember what was going on in July with the debt-ceiling crisis, credit default -- companies were not willing to go out on a limb and make any big expectations," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco.

"So they were conservative going in, and we have not seen a whole lot of downward revisions, which suggests companies are probably going to be able to make those numbers."

The economic calendar for next week includes the FOMC minutes from the two-day meeting in late September, along with import prices and retail sales for September, in addition to the preliminary reading on October consumer sentiment from the Thomson Reuters/University of Michigan surveys.

Economic data of late has been better than expected, helping to quell fears that the economy was headed for a double-dip recession. Once again, that leaves the euro-zone crisis as a potential land mine to disrupt a slow move higher.

"The reason we have lifted in the past week is the rhetoric has improved and we are seeing progress, not necessarily a plan, but you are getting countries to admit to the problem, and that is a step in the right direction -- you have to seek help before you can get help," Pado said.

"That is all we really need in order to get beyond this, and start focusing on the future and focusing on our own data. We have plenty of data that suggests slow growth, but nothing that suggests waving the red flag like a crazy person saying, 'How can you not see this?'"

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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