We have already seen at least one major upside surprise in earnings season for the Q1-2009 period.  But we have many major companies which are expected to report earnings this week that are market-movers that are likely to set the trends for this earnings season.  Among these are CSX Corp. (NYSE: CSX), Intel Corporation (NASDAQ: INTC), AMR Corporation (NYSE: AMR), Peabody Energy Corp. (BTU), Google Inc. (NASDAQ: GOOG), Gannett Co., Inc. (NYSE: GCI), Harley-Davidson, Inc. (NYSE: HOG), and General Electric Co. (NYSE: GE).  You’ll notice we have left financial stocks off of here, as that is for another piece.

It turns out some of these have seen the bar lowered  by analysts to the point that these companies could represent very large “fake” upside surprises.  Compared to last year, or even last quarter, some of these earnings are genuinely going to be atrocious.  The good news here is that most traders and analysts just refer to the consensus estimates, and for these we use the Thomson Reuters (First Call) estimates.  We wanted to outline how these earnings compare to history and to estimates, and how much these have recovered with the rally in the last five weeks.

CSX Corp. (NYSE: CSX) is set to report earnings on Tuesday morning.  This may only be the number four position in the U.S. by market cap at $11.5 billion, but traders group the rails together just like they group the trucking companies together.  The rail and freight giant is expected to post $0.51 EPS, and that consensus estimate was north of $0.80 EPS just 90 days ago.  To show how these earnings estimates have come down for future periods, the fiscal 2009 consensus is now $2.75 EPS (was $3.80 just 90-days ago) and the fiscal 2010 estimate is $3.16 EPS (was $4.49 just 90 days ago).  Compared to last year this represents expectations for a 17% sales drop and more than a 30% clip in earnings.  Here you could easily see the tail wag the dog, with larger U.S. rail stocks UNP, BNI, and NSC all under the spotlight.  CSX shares are still well over 50% down from last year’s highs, but they have recovered 40% from recent lows.

Intel Corporation (NASDAQ: INTC) reports earnings after the close of trading on Tuesday.  This company will be the kick-off for the PC, semiconductor, and technology sectors with the most recent March 31 cut-off date as the benchmark.  Thomson Reuters is looking for a whopping $0.02 EPS.  This is down from an expected $0.13 EPS just 90 days ago and down even worse than what the company reported at the end of 2008.  Compared to last year, it only represents about a 90% drop in earnings.  Only 90%, ouch.  The fiscal 2009 estimates are now a mere $0.43 EPS, and the consensus estimate for 2009 was nearly twice that just 90 days ago before the Q2-2008 earnings bombshell came out with “no guidance.”  Even the 2010 earnings guidance has come down from $0.96 to $0.80 EPS over the last 90-days.  The most correlated may be Microsoft due to the Win-Tel PC ties, but frankly Intel could set the stage for just about every semiconductor, PC, and communications company.  We won’t even try to throw AMD in there.  As a reminder, it was just about 60 days ago that Intel was bracing the notion that it could post its first quarterly loss in recent memory.  Its shares are “only” up about 30% from this year’s low.  Be advised, there is a “whisper number” floating around that is looking for much more than $0.02 EPS.

AMR Corporation (NYSE: AMR) and Southwest Airlines Co. (NYSE: LUV) are both on deck this week, with earnings Wednesday and Thursday respectively.  We are not so concerned about how these compare to a year ago, because a year ago they were fighting $100+ oil and today they are fighting a recession and are trying to decide if they should be hedged or not against oil prices for 2009 and 2010.  AMR is expected to lose all sorts of money with consensus being -$1.52 EPS.  Somehow estimates 90 days ago were -$0.21 for this same period.  The good news is that consensus estimates for the coming quarter are looking for a gain with $0.27 being consensus, and this is supposed to represent the “turning quarter.”  If not, let’s just say that traders and investors are going to be more than questioning the company.  Estimates for 2009 and 2010 have come down in the last 90 days.  At Southwest, the consensus estimate is for a positive report at $0.03 EPS.  That is extremely low compared to historic earnings and considering that most planes are still packed.  Southwest has seen the least revisions in the airline sector.  The drop in oil actually bit into earnings as they were the most hedged of all air carriers in 2008. Both airlines are down significantly off of highs of last year and of 2007, but AMR shares have bounced nearly 100% and Southwest shares have bounced almost 50% from recent lows.

Peabody Energy Corp. (NYSE: BTU) will be in a strange spot since it is expected to show positive earnings, yet many coal producers cannot turn a real profit at current prices.  As far as energy and commodities and as far as these prices all tracking each other, this will bring more to light on what Alcoa noted about aluminum being unprofitable at current prices and after both Conoco and Chevron have said about oil prices crunching margins. The $7.7 billion coal producer is expected to post $0.97 EPS.  This is actually a sharp earnings gain from what was seen in early 2008, but we have seen estimates for this quarter come down 10%.  For 2009 and 2010, the estimates are $2.96 EPS and $3.48 EPS respectively.  Those 2009 and 2010 numbers are down 25% from what was being forecast just 90 days ago.  While the stock is still down about two-thirds from the commodity and asset bubble of 2008, shares are actually up more than 75% off of recent lows.

Google Inc. (NASDAQ: GOOG), the king of search, gives earnings on Thursday after the close.  Google will represent just about every iota of the Internet and advertising for new media and old media.  Have you noticed how more and more agencies keep cutting advertising projections for internet and print and media advertising for 2009?  It has not shown up deeply so far at Google and its estimates, but logic would dictate that even with a greater than 70% share of online search that there is no immunity out there.  The company even capitulated to this notion in recent weeks.  The consensus estimate for Google is $4.91 EPS.  This may represent annual growth of 1% for this particular quarter, but that was after significantly beating projections a year ago.  This has also come down from estimates of $5.08 about 90 days ago and even more from when that bloodbath in late 2008 came upon us.  Analysts are still looking for 16% growth from 2009 to 2010, and you might expect to see this being the biggest at-risk or cornerstone trend numbers depending on what happens with ad spending.  We really want to point out something here that many analysts may be overlooking.  Its search share has continued to grow but has reached a point where it may be petering out, and online ad spending on the “CPM” basis has come down much sharper than what analysts have modeled in by our own observations and discussions with other new media companies.  We will be paying close attention to the total revenues versus ex-TAC revenues, because something does not seem to add up here.  We are not going to outright accuse Google of anything, but let’s just say we have some serious questions for some of the issues we are seeing in the Google ad model and the race to the free Internet and its domination of the space.  The good news for the company is that this may actually be irrelevant to the company’s earnings report.  Google could steer everything as it is one of Wall Street’s darlings, but for now as goes Google so goes Yahoo!, Baidu and more.

Gannett Co., Inc. (NYSE: GCI) is also on deck for Thursday earnings.  As it is a stodgy newspaper and old media company, it may not seem like much of a tell.  Most web-lovers might not even care.  But this will show the continued carnage in the print media world, and it could even offer some online media ad-spending trends above and beyond what we have already seen.  Despite a large run on Monday and having more than doubled off of March’s lows, shares are down close to 90% from last year.  Analysts are only looking for $0.25 EPS, but this would represent a drop of two-thirds from a year ago’s earnings level and this estimate has been almost cut in half over the last 90 days.  Estimates for the June quarter still seems too high at $0.41 EPS, although there is a continued drop expected from 2009 to 2010.  Much of the recent move was accredited to short covering with nearly 30% of the stock’s float being listed as in the short interest. The company also recently took out more financing, and while it was more expensive it also took away the notion that it would not be able to pay near-term maturities.  It is in print, online, and broadcasting, so you know what the trend is for its revenue and earnings base.   Fortunately, it has the CareerBuilder tie.

Harley-Davidson, Inc. (NYSE: HOG) is on deck for Thursday.  We do not consider Harley a transportation stock.  This is a consumer discretionary spending or luxury goods stock.  Analysts are looking for $0.51 EPS, and that is ‘only’ down from expectations of $0.60 EPS just 90 days ago.  The estimates for the coming quarter are $0.41 EPS, and that has come down sharply from an estimate of $0.76 just 90 days ago.  Both represent significant drops of about 35% for this quarter and over 40% for next quarter if those earnings come in at the mark.  The consensus earnings estimate is looking for growth from $1.51 EPS in 2009 to $1.85 EPS in 2010.  While it is somewhat of a puzzle pricing in an obvious expected recovery, those estimates just 90 days ago were $2.60 EPS for 2009 and $2.81 EPS for 2010.   This motorcycle legend has been on fire considering the Buffett investment and the economic problems and corporate restructuring.  Shares have recovered about 130% from recent lows, yet are still off well over half from last year’s highs and down over two-thirds from 2007.

General Electric Co. (NYSE: GE) will probably be the capstone for this week’s earnings with their earnings coming Friday in the early wee-hours of the morning.  Analysts are looking for $0.21 EPS, down from $0.44 a year ago and down from $0.31 EPS just 90 days ago.  The estimates are $1.00 EPS for 2009 and $0.96 EPS for 2010, and those have come down from $1.39 EPS and $1.45 EPS respectively just in the last 90 days.  This has been the most controversial stock as it is a manufacturing conglomerate along with a huge financial operation, yet it has been trading exactly like a bank.  The company has done everything it could to fend off the fight against it and the dozens of rumors against it, and shares have more than doubled off of lows of early March.  We were among the first to call the degree to which it fell as being far too much, but finding a period where GE’s common stock has doubled in 5-weeks is something we can’t place.  We are not expecting the detailed guidance any more from the company, but we are hopeful that GE can go back to trading like a deep cyclical manufacturing and infrastructure stock rather than trading like a bank on the edge of disaster.

What we expect is for most of these companies to say they still have very limited visibility.  We also expect the notion to be set that the worst portion of the fall-off in business has likely been seen.  With the last 5-week rally aside, could you imagine a corporate officer taking the risk of offering a rosy forecast in the current economy?  The silver lining is in the analyst estimates.  Not all of these estimates are worthless.  But many are. The rally has greatly changed the sentiment and what news traders and investors are willing to accept.  The bar is looking as though it was set so low that the reactions to the estimates will be cheers, at least until the comparisons are made to last year.  Or last quarter.

The good news for traders is that by Friday morning we should have a very clear picture of just how the total earnings season is likely to look and whether there is any sort of yardstick for the coming quarter.  After a 5-week rally it is going to be difficult to still not use the rearview mirror for comparisons to the past rather than comparisons to consensus estimates.

Earnings estimates always have been and probably always will be something akin to a game.  At least Wall Street can try to craft its own rally this way.  In a notion very similar to dealing with hospitalized patients, the criteria for good news may be very different than it was just a few months ago.  As a reminder, some of these estimates may change slightly by the time that these earnings come out over the next 24 to 72 hours.

JON C. OGG

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