US Earnings Preview For Oct 5 - 9

Third-quarter earnings season officially starts on Wednesday afternoon with Alcoa’s (AA) report. The aluminum maker is expected to announce revenues of $4.5 billion and a loss of 11 cents per share. The results will look awful compared to last year because the commodity bubble peaked in Q308.

Joining AA will be 6 other S&P 500 members: Costco (COST), Family Dollar (FDO), Marriott (MAR), Monsanto (MON), Pepsi Bottling (PBG), PepsiCo (PEP) and Yum! Brands (YUM). We have confirmed scheduled reports from a total of 24 companies.

Economic data will largely take a backseat to the earnings news. There is comparatively little on the calendar, with the most newsworthy release being the September ISM services index. The weekly energy and mortgage applications reports could still influence trading, however.

• Monday: September ISM services survey
• Wednesday: August consumer credit, September treasury budget, weekly crude inventories, weekly mortgage applications
• Thursday: August wholesale inventories, weekly initial jobless claims, weekly natural gas inventories
• Friday: August trade balance

The Fed will hold a conference in Washington D.C. Fed Chairman Ben Bernanke will provide an update of the Fed’s balance sheet on Tuesday evening. Vice Chairman Donald L. Kohn will talk about the Fed’s response to the financial crisis on Thursday at 12:15 p.m.

Kansas City Federal Reserve Bank President Thomas Hoenig will make 2 speeches this week. On Tuesday evening, he will appear at an economic forum in Denver. On Thursday evening, he will speak at a similar forum in Oklahoma City.

A 10-year TIPS auction will be held on Monday, a 10-year Treasury note auction will be held on Wednesday and a 30-year Treasury bond auction will be held on Thursday. Overall, the Treasury Department will sell $78 billion in securities this week. Recent auctions have been oversubscribed, signaling strong demand.

After this week’s pullback, the markets will be seeking direction. The Dow was trading near the first line of support on Friday morning, though further downside is a possibility. How revenues, earnings and guidance fare relative to expectations will play a role in influencing market direction.

Keep in mind that the majority of earnings reports won’t be released until the latter part of the month.

Third-Quarter Earnings

The median S&P 500 company is forecast to report a 15% drop in profits and a 6.9% drop in revenues. (On an average company basis, EPS should drop 36.2% and revenues should fall 9.4%. The average numbers look worse due to the influence of outliers, or companies projected to report very large year-over-year drops.)

Companies That Could Issue Positive Earnings Surprises

PepsiCo has topped expectations for 2 consecutive quarters by an average margin of 3 cents per share. Though the third-quarter Zacks Consensus Estimate is unchanged at $1.03 per share, a recent revision by 1 brokerage analyst has resulted in a most accurate estimate of $1.04 per share. PepsiCo is scheduled to report on Thursday, Oct 8, before the start of trading.

Companies That Could Issue Negative Earnings Surprises

Concerns about lower demand for fertilizer prompted 3 analysts to cut their fiscal first-quarter profit projections on Mosaic (MOS) in recent weeks. The downward revisions have pushed the Zacks Consensus Estimate 4 cents lower to 33 cents per share. The most accurate estimate is more bearish at 22 cents per share. MOS has missed expectations twice in the past 4 quarters. Mosaic is scheduled to report on Monday, Oct 5, after the close of trading.

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