Brighter earnings cloud hopes

THE BUSIEST week of Wall Street's quarterly earnings season has left investors more uncertain of what the future holds than they were before hundreds of major American companies provided the latest in financial information.

Of the 205 firms in the Standard & Poor's 500 that reported second-quarter earnings on Tuesday, Wednesday and Thursday, the busiest reporting days, more than 60% beat analysts' low expectations. But cloudy forecasts of future profitability were a downer in a market that has been expecting big things from the second half of the year.

Companies of every shape and size, from eBay, led by Meg Whitman, to Eli Lilly met or beat estimates only to offer hazy or depressing comments about future prospects. Although only 12% of companies reporting so far missed second-quarter targets, the ratio of firms issuing warnings compared with those offering positive guidance is rising ominously, reversing a six-month trend.

First Call director Chuck Hill said analysts' estimates for the last quarter were reasonable, but expectationsfor the third and fourth quarters were too high, leading to sharp downward revisions.

A few weeks ago analysts expected a 25% rise in the S&P 500 companies in the current third quarter. The projection now is about 15%.

Hill said the two sectors most affected by capital spending are technology and industrials and Intel and Caterpillar are industry icons. 'Both companies had down earnings from a year ago and both warned going forward,' he said. The message from Week One of the earnings season is that the profit recovery in the second half is going to be more gradual than hoped for.