Reported earnings forecast slow recovery when restocking ends

S&P Sept09.jpg

US corporate earnings were down a record 89% in Q1 versus the previous 12 months at just $7. Q2 saw only a minor improvement with earnings at only $8. Its interesting, therefore, to see market expectations for 2010.

The chart is based on S&P analyst forecasts, and shows “reported earnings” (red line) are expected to recover to c$45 in 2010 as restocking continues. But this would still only take them back to 2003 levels.

Unsurprisingly, therefore, analysts are choosing to focus on “operating earnings” (blue line) which, as the blog discussed last month, exclude many negative items that have to appear in “reported earnings” under GAAP accounting standards.

This discrepancy featured in the 2000-2 downturn, but was not seen in the 1990-4 downturn. It thus usefully highlights the wide gap between those expecting a quick V-shaped recovery now restocking is underway, and those who (like the blog) fear a more prolonged U-/W-shape will develop.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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