Tempering Expectations Ahead of Base Earnings (AA, CVX, SGR)

It is still too soon to be counting the last revisions for major technology companies reporting calendar Q2-2009 earnings season.  But the trend set at the end of last week and being continued today is one of caution.  The last earnings season had the bar set extremely low.  But now investors seem to be demanding more than just hanging on to a notion of “not as bad” or “close enough to live with” for earnings reports.  This seems to be the case this week for large base economy and infrastructure players such as Alcoa, Inc. (NYSE: AA), Chevron Corp. (NYSE: CVX), and even Shaw Group Inc. (NYSE: SGR).

ALCOA Inc (NYSE: AA) may be the top case as earnings estimates are -$0.34 EPS for earnings this Wednesday.  This estimate has widened out over the last 90-day period as metals companies have had low expectations on the entire complex from the production and specialty side all the way down to the mining side.  Many traders have tried and tried for years to say that Alcoa being the first to report of the DJIA components and of the major metals is a barometer for the entire metals complex and for the industrial and base economic sectors.  This is a matter of opinion, but to us this notion is coincidental rather than indicative.  Shares are down almost 7% late in the day at $9.18, and that is down from $10.44 a week ago.

Chevron Corp. (NYSE: CVX) is on deck for Thursday, but this is actually listed as an “interim update” and the formal earnings areexpected July 31, 2009.  The earnings estimates are going to look awful if you compare them to last June when oil was way above $100 per barrel.  Revenues are expected to be more than cut in half as well with lower oil prices.  The real takeaway we believe Wall Street will be looking for is at what level these integrated oil giants will have as an average price that they can stay highly profitable.  This figure fluctuates wildly from firm to firm.  Shares are down only 1.1% at $63.69 late in the day, and that is down from $66.88 last Monday.

Shaw Group Inc. (NYSE: SGR) is expected to report on Thursday as well and is expected to have flat revenues from a year ago.  Estimates are $0.60 EPS and $1.79 billion.  Because of its infrastructure construction and large project dependence, this one is frequently a wildcard around earnings. The estimates for earnings are lower over the last 90-day period, but only from $0.63 EPS.  Shares are down close to 5% at $25.18 late Monday, and that is down from $27.62 last Monday.

These are  larger companies reporting this week whose quarter-end operations were as of the end of June.  Next week is when the real floodgates start to open.  By then, we’ll have a solid indication of how the major technology, base economy, industrials, and more will be looking for Q2.  And hopefully we’ll have at least a tad more specific guidance than what companies have offered over the last two quarters for what lies ahead.

Jon C. Ogg
July 6, 2009