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7 Bellwethers to Watch This Earnings Season

What some of the biggest names in the market may show

By Hilary Kramer, Editor, GameChangers

Earnings Season And…they’re off. Alcoa (NYSE:AA) fired the ceremonial starter’s pistol for a critical earnings season last Monday, and the results were solid. The company forecast 7% growth in aluminum volume, which was an encouraging sign that global economic activity may not be as weak as many had feared.

Still, while I do expect a generally positive earnings season, we’re absolutely in for some surprises along the way. JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) have already provided a couple. Here are seven companies reporting in the coming days I recommend you keep a close eye on, because they’re good barometers for where this season is going — along with my expectations for each.


NYSE:IBMIBM (NYSE:IBM) reports on Jan. 19 and will be a key proxy for gauging technology demand, especially information technology (IT) services in Europe, where IBM derives about 25% of its revenues. If IBM misses Street estimates for $4.62 a share, or worse lowers 2012 guidance, investors will fear a downturn in IT spending this year.

I expect IBM to be on the conservative side with guidance given that Europe is such an important revenue-driver and because the market has priced in high expectations — the stock has been hitting all-time highs recently. That’s a real accomplishment considering most other tech companies have never regained their highs from more than a decade ago.

Among the key questions: Will IBM be able to sustain the impressive 17% growth rate it enjoyed last quarter from the BRIC countries? Also watch to see how tough investors will be on newly crowned CEO Virginia Rometty.


Caterpillar Inc. (NYSE:CAT)Caterpillar (NYSE:CAT) sales growth in recent years has come from emerging economies.  The management team’s forecast for 2012 will be a good indication of what to expect from key countries — specifically whether emerging markets will continue to spend on infrastructure and mining projects. Caterpillar has forecast 10% to 20% sales growth in 2012, which is a wide range.

Economic reports out of China have been uneven, so if Caterpillar guides to the lower end of that range when it announces earnings on Jan. 26, that would not bode well for the other companies that get a big chunk of their earnings from the emerging economies — including Deere (NYSE:DE), CNH Global (NYSE:CNH) and Joy Global (NYSE:JOY). However, the import/export data out of China last week was better than expected, so conversely, guidance from Caterpillar at the higher end of the range would be good for those other companies as well.


GoogleGoogle (NASADQ:GOOG) is no longer just one of the most innovative companies on the planet, it’s now one of the most important bellwethers. Google continues to excite investors by coming up with new products. If Google+, its foray into social networking, shows positive momentum, the stock would likely move higher — especially with Facebook’s IPO in the works at such lofty valuations — as there have been rumors that growth has been slipping.

Here’s what I’ll be looking for when Google reports on Jan. 19: If revenues beat, but the bottom line disappoints, the stock will get hit because it will look like growth is coming from lower-margin products and services. But, if the bottom line also exceeds expectations, the stock would almost certainly rally and perhaps take Nasdaq and many other stocks with it.


Intel Corp. (NASDAQ:INTC)Intel (NASDAQ:INTC) is another important barometer of technology demand. Its report on Jan. 19 will be much more about what’s to come because in mid-December, the company already indicated revenues from the fourth quarter would be $13.4 billion to $14 billion — down from the previous guidance of $14.2 billion to $15.2 billion.

What investors want to know now is what the company’s first-quarter revenues will look like.  Failure to provide solid revenue guidance could lead to concerns that the fourth-quarter shortfall was due to more than disk-drive shortages, and that would pressure the stock and the Nasdaq. Revenue estimates for the first quarter are currently $12.8 billion.


NYSE:MMMAnalysts expect 3M (NYSE:MMM) to report $1.31 a share on Jan. 26, which would be up slightly from $1.28 a year ago — with revenues advancing 5.7% to $7.1 billion. 3M did lower earnings guidance for 2011 three months ago when it reported third-quarter results, citing weakness in the company’s display and graphic business, which is suffering from weak sales of LCD screens.

This time around, I believe the market will look closely at the company’s transportation, office, health care and safety, security and protection businesses, which in total represent a good picture of overall economic demand.


McDonald's MCDMcDonald’s (NYSE:MCD) has been a model of stability in the last year, posting solid same-store sales throughout 2011, and there’s little risk that the company will miss earnings estimates of $1.29 for the fourth quarter and $5.23 for the full year. Investors will want to hear what management has to say about sales in Europe and whether they’re weakening, although there were no such signs throughout 2011.

Trading at 17.6X estimated 2012 earnings, McDonald’s seems to be “priced for perfection.”

The company could increase its bottom line nicely in 2012 yet see the stock fail to live up to last year’s gains — when it rose more than 30%.


whirlpool-logoWhirlpool (NYSE:WHR) looks like a prime candidate to disappoint when it reports results on Jan. 30. Last year was a difficult one for Whirlpool. Its stock declined over 40%, and earnings fell from weak demand, which the company described as being at recessionary levels in developed countries.

Weaker sales volume and higher material costs have also squeezed margins. While the material costs have begun to level off, with housing still weak the company could miss 4Q estimates of $2.11 a share on a 1% sales decline.

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