Q2 2012 earnings season: So it begins; ready for disappointment?

JPMorgan (JPM) and Wells Fargo (WFC) start the earnings season today but the real impact from earnings will not be felt until next week when more than 100 companies will report.

Q2 earnings season likely to disappoint
Last week we presented our thoughts ahead of the second quarter earnings season which were mainly centered around the increasing probability of the first quarterly earnings miss since Q4 2010. Our theory is based on the fact that S&P 500 earnings estimates for Q2 are the highest ever observed by Bloomberg and that collides with the weakest economic quarter in a long time. At the same time the USD has strengthened against most other currencies in Q2 and crude oil prices are down 19 percent in Q2. All these factors are the reason why we think companies will likely disappoint.

Furthermore, we expect most companies to be extremely cautious about their outlook for the rest of the year as the US election draws closer, the Eurozone debt crisis continues and questions remain about the strength of the global economy and particularly China. This could likely lead to lower stock prices over the next couple of weeks. However, company executives are notoriously bad at forecasting their own busineses and since we believe in a minor economic pick-up in the second half of the year, any major dips in global stocks would be an opportunity to increase stock exposure.

Next week's earnings: Giants will take the stage
Many of the world's largest companies will report earnings next week and together they will set the tone for corporate earnings this reporting season and for the health of global business overall.

Monday

• Citigroup: Lower earnings compared to last year will be driven by the tough environment for banking and capital markets. Consensus is looking for EPS of 0.89 with estimates, down 13 percent in the last three months.

Tuesday

• Coca-Cola: This Warren Buffet favourite will deliver as it always does. Consensus is looking for EPS of 1.19, up 1.5 percent from last year. Q2 estimates have been flat over the last three months.
• Intel: An important release to watch as it is a good gauge of both consumer and enterprise demand for IT. Consensus expects EPS to be 0.54, down 9 percent from last year.
• Goldman Sachs: The best barometer of global capital markets. Consensus expects EPS of 1.17, down 37 percent from last year. Q2 estimates have been crushed in the last three months - down 57 percent.

Wednesday

• IBM: Berkshire Hathaway's latest major stock position is expected to release Q2 EPS of 3.43 up 11 percent from last year. This report will be a good gauge of business confidence in IT infrastructure.
• Bank of America: The second-largest US bank measured by total assets is still finding itself in a large turnaround and restructuring of its vast businesses. Consensus expects Q2 EPS to be 15 cents. Estimates are down 15 percent from three months ago. An important release to watch as it gives good insight into the health of the US mortgage market and trend in consumer credit.

American Express: A good gauge of consumer credit. Consensus looks for EPS of 1.09, up 2 percent from last year.

Thursday

• Novartis: The world's second-largest drug maker in terms of sales and the largest generic drug maker. Expectations for the industry are slightly negative going into the earnings season. Consensus expects Q2 EPS of 1.34, down 9 percent from last year.
• Microsoft: Still the world's largest software company and a good gauge of business software demand. Consensus looks for EPS of 0.62 down 10 percent from last year. Estimates have come down by 6 percent during the last three months. 
• Google: Still the rising star in the technology space. With many new products and services launched it will be a closely watched release. Especially in terms of its market share gains in phones and tablets compared to Apple. Consensus expects EPS of 10.10, up 32 percent from last year. Estimates have been unchanged lately.

Friday

• General Electric: The world's largest industrial company is a must read - by definition the best barometer on global industrial activity. Consensus expects EPS of 0.37, up 9 percent from last year.
• Vodafone: The world's largest mobile phone carrier is still struggling with its European business while emerging markets are growing at healthy rates. Consensus is looking for EPS of 0.04.
• Schlumberger: A good gauge of oil and gas drilling activities which again is a good barometer on expectations for global economic demand. Consensus expects EPS of 1.00, up 15 percent from last year.

 Read the full earnings release publication by downloading the attached PDF.