A Tempered Outlook of Key Earnings Expectations (AA, SNDK, CSCO, AAPL, GE, JPM, BAC, WFC, WMT, LUV, IBM, T, VZ, BAC, MCD, AAPL)

The first quarter earnings reports will start to dribble out this week and expectations have been tempered in recent trading days ahead of Alcoa Inc. (NYSE: AA) on Tuesday afternoon.  The stock market had an incredible first quarter performance with double-digit gains but there has been some growing caution over real expectations.  24/7 Wall St. has taken a look at internal corporate commentary and external comments which show some continued caution toward the high income growth.  This data features several DJIA components and also other industry leaders to get to the bottom of what to expect this earnings season.

This week’s review focuses on the most fresh data on Alcoa, Inc. (NYSE: AA), SanDisk Corporation (NASDAQ: SNDK) and Cisco Systems, Inc. (NASDAQ: CSCO).  We also have more fresh data on the following: General Electric Co. (NYSE: GE); J.P. Morgan Chase & Co. (NYSE: JPM); Wal-Mart Stores Inc. (NYSE: WMT); Southwest Airlines Co. (NYSE: LUV); International Business Machines Corporation (NYSE: IBM); AT&T, Inc. (NYSE: T) and Verizon Communications, Inc. (NYSE: VZ); Bank of America Corporation (NYSE: BAC); and also McDonald’s Corporation (NYSE: MCD).

The trends should not move investors towards a panic button, but there is some growing concern even compared to just three weeks ago.  The news is far from positive and could act as a drag on the expectations that the market will keep rising.

Alcoa, Inc. (NYSE: AA) reports earnings on Tuesday and it is generally the first DJIA component to report earnings each quarter.  Investors always try to use Alcoa as a benchmark for all major economic companies each earnings season.  The issue goes far beyond Alcoa and far beyond just the base economy companies as one last tempering of earnings expectations for the first quarter of 2012.  The company just noted at the end of last week ahead of earnings that it would be dialing down some capacity in the Atlantic region, a move which cannot exactly be interpreted as strengthening demand ahead of earnings.

SanDisk Corporation (NASDAQ: SNDK) recently warned of lower demand and lower pricing hurting sales and margins.  With it being the largest independent flash maker, this dimmed the hopes of the tech boom continuing and the drop was in all Apple Inc. (NASDAQ: AAPL) component suppliers.  There was also news just last week from John Chambers of Cisco Systems, Inc. (NASDAQ: CSCO) that government spending was going to get worse before it gets better.  That is not exactly a call for strength.

Moody’s recently gave a lame downgrade of General Electric Co. (NYSE: GE).  We warned when the “negative review” came up last month that the call was unwarranted and/or very late because things have gotten better rather than worse.  Still, this had to temper at least some expectations.

Jamie Dimon of J.P. Morgan Chase & Co. (NYSE: JPM) recently issued his annual letter to shareholders and Dimon has some warnings in there.  Its earnings are due this Friday.  We were very disappointed in the dividend hike being too small from the top-rated bank and Dimon spoke about how earnings could be one-third or higher in a normalized environment.  Dimon also warned that pesky mortgage-related losses are continuing to drag earnings.  Maybe Dimon was acting to temper real earnings expectations for this earnings season.  DJIA component Bank of America Corporation (NYSE: BAC) has seen its shares double from the late-2012 lows before a recent pullback.  Can that performance be expected to continue?  It would take a serious upside surprise to drive shares much higher if logic still matters.  Wells Fargo & Co. (NYSE: WFC) is also set to report earnings this coming Friday morning.

Wal-Mart Stores Inc. (NYSE: WMT) threw up its cautionary guidance back in the second-half of February that sales were not going to grow as much as many investors had hoped.  Despite a strong stock market in March, Wal-Mart shares are still $2.00 shy of where they were before its report and that means that its big technical breakout may have to wait.

Southwest Airlines Co. (NYSE: LUV) has one of the best-run airlines out there with lower labor woes compared to other carriers, but this airline recently warned of no profits in the quarter.  Thomson Reuters now has a target of -$0.05 EPS and that was expected to be positive earnings of $0.04 EPS les than a month ago.

International Business Machines Corporation (NYSE: IBM) has a new CEO and it has not offered any new tempering of estimates on its own but Bank of America/Merrill Lynch cut the rating to Neutral from Buy based in part on valuation last week.  The firm noted that upside to revenues seemed limited in the current IT-spending environment.

AT&T, Inc. (NYSE: T) and Verizon Communications, Inc. (NYSE: VZ) both saw their earnings upside expectations tempered at the very end of March After R. W. Baird lowered the ratings on both down to Neutral calling the shares pricey.  Even S&P Capital IQ took the AT&T rating down to Buy from Strong Buy and RBC lowered its rating on Verizon down to Sector Perform from Outperform.

McDonald’s Corporation (NYSE: MCD) is another issue that investors may need to temper expectations around after the king of fast food tempered its own sales expectations.  It has also announced the retirement of its star-CEO.  Goldman Sachs recently removed the DJIA’s top performer of 2011 from its prized Conviction Buy List as there may be better value elsewhere.

Earnings expectations have been tempered but they are still likely nowhere near as bad as what investors were expecting as recently as January.

JON C. OGG