Zacks Earnings Preview: Champion Enterprises, Citigroup, CSX Corporation, International Business Machines and United Technologies

Business Wire, April 14, 2008

CHICAGO -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Champion Enterprises (NYSE: CHB), Citigroup (NYSE: C) and CSX Corporation (NYSE: CSX). To see more earnings analysis, visit http://at.zacks.com/?id=3207.

Earnings Preview is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

Large-cap companies will dominate first-quarter earnings news. Out of the 236 companies confirmed to report, nearly a third belong to the S&P 500. Among those on the docket are nine Dow components including International Business Machines (NYSE: IBM) and United Technologies (NYSE: UTX).

Citigroup and J.P. Morgan are projected to report large declines in year-over-year profitability (C is expected to post a significant loss). The other seven Dow components, however, are expected to have generated average year-over-year growth of 11.6%. Therefore, if the markets do react to positive earnings news, it is within the realm of possibilities that the upper limits of the current trading range could be tested.

Understand, however, that nearly one out of three companies reporting will be from the financial sector, however, resulting in potential downward pressures on stocks.

Adding to the potential daily swings will be several important economic reports:

* Monday: March retail sales, February business inventories

* Tuesday: March PPI, April New York Fed manufacturing survey, April NAHB housing index

* Wednesday: March CPI, March housing starts, March industrial production and capacity utilization

* Thursday: Weekly jobless claims, March Conference Board leading indicators, April Phili Fed survey, April Beige Book

* Friday: Nothing scheduled

My guess is that the markets will remain in the current trading range as poor results from the financial sector offset positive profit news from other sectors. This is not a negative, but rather a continuation of the status quo for stocks.

Interpreting the initial batch of first-quarter earnings reports comes down to a matter of perception. Among S&P 500 companies, twenty-two exceeded expectations and six missed as of Thursday evening. Median per share growth is 6.2%.

On the other hand, median net income growth is negative, as are average EPS growth and average net income growth. Share buybacks and significantly negative year-over-year comparisons for two companies are the primary reasons for the disparity.

Since the sample size is very small and not well diversified across sectors, I would caution against extrapolating any trends out of these initial numbers.

Companies That Could Issue Positive Earnings Surprises during the Week of Apr 14 - 18

Last month, CSX Corporation (NYSE: CSX) preannounced first-quarter earnings of 74 cents to 77 cents per share. The railroad company is benefiting from higher commodity prices, the booming agricultural sector and cost-cutting measures. Nearly all of the covering brokerage analysts have since raised their quarterly forecasts to the upper end of the new guidance. CSX has topped expectations during three out of the past four quarters. CSX Corporation is scheduled to report on Wednesday, Apr 16, before the start of trading.

Companies That Could Issue Negative Earnings Surprises during the Week of Apr 14 - 18

Overshadowed by the traditional homebuilders are the troubles manufactured homebuilders are encountering. Champion Enterprises (NYSE: CHB) announced a few weeks ago its intention to close a plant in Oregon and idle a plant in Indiana because of ongoing weak demand.

One of the four brokerage analysts who cover the stock recently widened his expectations for a first-quarter loss. The lowered forecast caused the consensus estimate to worsen by a penny to a loss of three cents per share. CHB has missed twice during the past four quarters. Champion Enterprises is scheduled to report on Tuesday, Apr 15, after the close of trading.

The question isn't whether Citigroup (NYSE: C) lost money last quarter, but rather how much? Just within the past seven days, another brokerage analyst cut his first-quarter forecasts resulting in a consensus loss estimate of 92 cents per share. The most accurate estimate is even more bearish at a loss of $1.03 per share. (Three months ago, the average forecast called for a profit of 83 cents per share.) The banking conglomerate missed expectations last quarter by a very large amount. Citigroup is scheduled to report on Friday, Apr 18, before the start of trading.

Charles Rotblut, CFA, is the senior market analyst for Zacks.com.

Want to turn earnings surprises into quick profits? Learn how by visiting http://at.zacks.com/?id=3206.

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