Goldman Strategists Say U.S. Earnings Are `Awful' (Update1)

By Alexis Xydias
April 14 (Bloomberg) -- An ``awful'' start to the first- quarter U.S. earnings season is a ``harbinger of things to come'' that will push stocks lower, according to Goldman Sachs Group Inc.
``Early signs are awful,'' a team led by New York-based David Kostin, Goldman's U.S. investment strategist, wrote in a note today. ``We expect generally disappointing results and a swath of lowered profit guidance that will drive the Standard & Poor's 500 Index lower in coming weeks.''
The S&P 500, the benchmark index for American equities, dropped 2.7 percent last week after General Electric Co. said the credit-market crisis caused an unexpected earnings decline, while slowing economic growth and rising energy prices eroded profit at United Parcel Service Inc. and Alcoa Inc. Futures on the S&P 500 lost 0.1 percent at 10:50 a.m. in London.
Analysts surveyed by Bloomberg have cut their projections for first-quarter earnings at S&P 500 companies every week since Jan. 4. They now predict a 12.3 percent drop, compared with an estimate for an increase of 4.7 percent at the start of 2008.
Alcoa marked the start of the earnings reporting season on April 7 when it became the first company in the Dow Jones Industrial Average to post results.
J&J, IBM
Johnson & Johnson, the world's largest maker of consumer health-care products, is scheduled to report earnings tomorrow, while International Business Machines Corp., the biggest computer-services company, will follow a day later. Merrill Lynch & Co. will report April 17, while Citigroup Inc. will post results April 18.
Merrill and Citigroup will reveal at least $15 billion more of subprime mortgage writedowns this week, the Sunday Times of London reported yesterday, citing analysts it didn't identify.
Speculation the U.S. economy is falling into a recession and almost $250 billion in banks' writedowns and credit losses have also spurred analysts to cut earnings estimates for Europe.
Profits for companies in Europe's Dow Jones Stoxx 600 Index will drop 0.1 percent this year, according to analyst forecasts compiled by Bloomberg last week. That compares with an estimate for 11 percent growth at the start of the year and would mark the first earnings contraction for the region in six years.
Full-year forecasts for U.S. earnings will also be dragged down by lowered ``guidance'' from executives in the current reporting season, Kostin wrote today.
Analysts are currently estimating 2008 profit growth of 11 percent for S&P 500 companies, down from 15 percent at the start of the year, according to Bloomberg data. The index has declined 15 percent since reaching a record in October.
Goldman is the biggest U.S. securities firm by market value.
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
Last Updated: April 14, 2008 06:00 EDT