Earnings season guide

The fourth quarter of 2009 and the full year 2009 officially ended December 31st so earnings season must be just around the corner. The fourth quarter/full year earnings season kicks off a little later than a typical quarter because it takes longer for corporations to close their full year books. However, the first of the major corporate reports will come trickling in next week. What important things should we be looking for?

Important Thing #1:

U.S. businesses registered earnings growth in the Third Quarter. However, this growth was overwhelmingly due to expense cutting, rather than actual revenue growth. So the most important thing to look for in the fourth quarter earnings reports is actual revenue growth. Profit growth through expense cutting is not sustainable. Ultimately, U.S. corporations need to start increasing their sales in order to expand the economy.

Important Thing #2:

Will corporations report revenue growth strong enough to justify new hiring. This will drive down the unemployment rate and increase consumer confidence. Consequently it will likely lead to an increase in consumer spending.

Important Thing #3:

Which sectors of the U.S. economy will register earnings growth and which will not? The answers to these questions will help in providing answers to some important questions. For example: are U.S. consumers gaining confidence and is that confidence resulting in them spending money. If personal electronics firms do well then it will be an indication of growing confidence on the part of U.S. consumers. Expanding earnings from financial institutions will be important for the economy, too. This will be an indication that the financial institutions have confidence enough in the economy that they are willing to take on financial risks in the form of loans.

Important Thing #4:

How are U.S. corporations doing overseas? There are strong indications that most economies around the world are worse off than the U.S. Thus, improvement in overseas revenues by U.S. corporations will be an indication that the global recession is abating globally.

There are more things to watch and monitor, but I feel that these are the major points to observe.

Be well!

Jason