Fewer profit warnings lift investor gloom

New York, Jan 7: Here's a life raft for investors drowning in stock market losses. Fewer companies are warning that quarterly earnings will miss expectations.

Higher earnings bolster stock prices and while expectations for profits are still low with less than two weeks until companies begin reporting fourth-quarter results, the number of warnings is the lowest in a year. “It seems to be a good trend and fewer early warnings will hopefully lead to less disappointments,” said Rich Barnett, director of equities at City National Investments, a unit of City National Bank, in Beverly Hills, California, which oversees $5 billion in assets. “We had some nasty surprises in the past and maybe the worst is behind us.”

It is the trend, though, that counts. The percentage of companies reporting disappointment is falling sharply, even though many companies still have bad news.

For the current fourth-quarter period, 1,204 companies have issued statements forecasting fourth-quarter results, with 44 per cent saying results will be worse than anticipated, according to Thomson Financial/First Call, a Boston-based research firm.

As bad as that sounds, it is better than earlier last year. By this time in the third quarter, 63 per cent of companies making pre-announcements were warning investors that profits would fall short. That was less than the 68 per cent that warned in the second, and the 70 per cent in the first quarter.

The disappointment is continuing in the fourth quarter with such bellwether companies as telecommunication equipment maker Lucent Technologies Inc, optical networker Ciena Corp and apparel retailer Gap Inc. But the number is way down when compared with the same time in prior periods.

There is also good news on the other side of the equation, with 25 per cent of those pre-announcements being positive, up from an average of 16 per cent in the first three quarters.

— Reuters