US earnings season makes a rocky start

 
Marion Dakers
QUARTERLY earnings season in the United States kicked off under a cloud yesterday, as Alcoa profit growth was lower than expected and a top New York official said that Wall Street should brace for lower bonuses and job cuts.

Alcoa, the largest US aluminium producer and the first Dow component to report results, said slowing economic growth knocked prices for the metal lower, denting its third-quarter profit and sending its shares down in after-hours trading.

The firm said income from continuing operations was 15 cents per share, but down from 28 cents per share in the second quarter and below forecasts of 22 cents.

Alcoa said revenue rose 21 per cent to $6.4bn from a year earlier, but was three per cent lower than the second quarter of this year as metals prices slumped sharply.

Meanwhile the New York state comptroller said Wall Street should expect profits, and therefore bonuses, to fall for the second year running.

In a report on the state of New York’s financial district, Thomas DiNapoli found that the securities industry could lose another 10,000 jobs by the end of 2012, denting the city’s tax takings.

The average securities industry salary in 2010 was $361,330, or 5.5 times higher than the average private sector salary of $66,120, DiNapoli said.

ANALYSIS | US THIRD-QUARTER EARNINGS SEASON

ALUMINIUM giant Alcoa is the unofficial starting gun for the US quarterly earnings season, and this season more than most will be closely watched by investors for signs of weakness in consumer confidence and demand.

US earnings have held up better than those in Europe or Japan, analysts at Thomson Reuters said yesterday (see chart above), but they see this as unlikely to last as economic conditions worsen. Financial and materials stocks are most likely to disappoint, they said.

Food and drink maker PepsiCo is expected to show profit growth when it reports its earnings before US markets open today, but its shares fell 1.6 per cent yesterday ahead of the news.

JP Morgan kicks off the banking sector results tomorrow, with investors braced for grim reading after a dismal quarter for trading and dealmaking. Some analysts believe Goldman Sachs could fall to a quarterly loss, while Bank of America Merrill Lynch, which reports next week, will also be heavily scrutinised.

Internet leader Google will also reveal whether it has come under pressure from rivals such as Facebook for advertising revenue, and the success of its smartphone and tablet ventures. Other bellwether firms to watch are industrial equipment maker Caterpillar on 24 October; and freight company UPS and office supplier 3M, which report on 25 October.