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Earnings Central: It's All About The Outlook

It’s all about earnings next week. Well, sort of.

With recession fears becoming more entrenched, and not much in the way of major economic data next week, investors will be scanning earnings releases to take the temperature of Corporate America. What is important is the outlook.

This week’s selloff of U.S. stocks - to some extent - reflects a belief by investors that earnings forecasts will be coming down for the fourth quarter, and perhaps longer.

This is proved out by the fact that while the perception of earnings is dismal, the reports have actually been a bit better than expected. So far, of the 131 companies in the Standard & Poor’s 500 Index that have reported earnings for the third quarter 66.4% have beaten estimates, 8.40% were in-line, and 25.9% have fallen short of analyst forecasts, according to Reuters Estimates.

What’s spooked investors has not been the earnings themselves, but what the companies are saying about the climate they are facing.

This was most clearly illustrated by Caterpillar. The world’s top maker of earth-moving equipment, said several key industries it serves, including trucking and nonmetal mining, are “in recession.” It continued by saying the residential building industry is in “severe recession” and noted its nonresidential construction industry is declining as fast.

Next week’s reports should offer plenty more clues about the economy. It actually is the busiest week of the third-quarter earnings season, with 163 companies in the Standard & Poor’s 500 Index expected to report. Of those, six are components of the Dow Jones industrial average.

Monday:

On Monday, investors will hear from companies including Dow components Merck and American Express.

Merck has been having a good year. The pharmaceutical company has increased its earnings forecast three times this year, and is expected to see its latest earnings rebound from last year’s third quarter, when it felt the blows of lost patent protection for its popular cholesterol drug Zocor and the effects of the withdrawal of pain drug Vioxx.

Merck’s third-quarter earnings are expected to rise to 69 cents a share on revenue of $6.06 billion, according to Thomson Financial.

Meanwhile, rival Schering-Plough, which also reports before the market opens on Monday, is expected to earn 30 cents a share, on revenue of $2.87 billion, according to Thomson. Although earnings are expected to fall, revenue will be higher than a year ago.

Investors also will gain a glimpse of how toymaker Hasbro is faring as news of toy recalls dominated the headlines in the third quarter. Hasbro is expected to earn 78 cents a share on revenue of $1.18 billion, Thomson said.

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Kimberly-Clark, the maker of Huggies diapers and Kleenex tissue, is expected to see its earnings rise to $1.06 a share on revenue of $4.52 billion.

Investors also will gain another glimpse of how the major oilfield service companies are doing. On Friday, Schlumberger, the leader of the sector, outpaced analyst expectations. Then, on Sunday, Halliburton also outpaced estimates, which called for earnings 64 cents a share on revenue of $3.87 billion. Next up is Weatherford, which is is expected to earn 84 cents a share on revenue of $1.99 billion, according to Thomson.

After the market’s close, investors will hear from American Express. The company is expected to earn 85 cents a share on revenue of $7.29 billion, Thomson said.

Earnings also are expected from Apple and Texas Instruments after the bell. These reports will give investors another read on the health of the tech sector.

Apple earnings are expected to rise sharply to 86 cents a share on revenue of $6.07 billion. A year ago, the company earned 62 cents a share on revenue of $4.84 billion. Investors are likely to focus on the pace of iPhone sales.

Texas Instruments, one of the top chip makers, is expected to report lower revenue, but higher earnings when it reports on Monday. On average, analysts surveyed by Thomson Financial expect TI to report earnings of 50 cents a share on revenue of $3.66 billion.

Expectations for the Dallas company may be running high in the wake of strong earnings from Nokia, one of the world’s top cellphone vendors and TI’s biggest customer. Nokia reported an 85 percent jump in profit on Thursday, fueled by market share gains.

AT&T, DuPont, & Boeing

Tuesday:

Tuesday brings reports from two more Dow components,AT&T and DuPont.

Investors are curious to see how much of a benefit AT&T is seeing from being the exclusive carrier of Applie’s iPhone. This will be its first full quarter of results with the sought-after cell phone. Analysts polled by Thomson expect, on average, earnings of 71 cents a share and revenue of $30.1 billion. That’s sharply higher than its results a year ago.

DuPont has had several headwinds to struggle with this year. Among them: soaring oil prices, market share losses in its corn-seed business, and slumping housing and automotive sectors. The Wilmington, Del., company is expected to see its earnings rise to 52 cents a share on revenue of $6.73 billion, Thomson said.

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Earnings from UPS, the largest shipping carrier, and UAL, the parent of United Airlines, are also among those reports investors will be looking at to gain insight on the health of the consumer and the economy.

UPS is expected to see its earnings rise to $1.02 a share on revenue of $12.21 billion, Thomson said.

Meanwhile, analysts estimate UAL will earn $1.88 a share on revenue of $5.36 billion, Thomson said. That’s higher than a year ago.

After the bell, investors will be looking to see if Amazon.com can do it again. In the second quarter, the company raised its outlook for the year. This time around, the company is expected to post profit of 18 cents a share, compared with earnings of 5 ents a share, a year ago, Thomson said. Revenue is estimated to rise to $3.14 billion from $2.31 billion last year. Sales are expected to have seen a boost from the July release of the latest Harry Potter novel, which is the last in that popular series.

Wednesday:

Boeing, ConocoPhilips, GlaxoSmithKline, Merrill Lynch, Genzyme, Anheuser-Busch, Pulte Homes, and Symantecare among the many names on the calendar Wednesday.

Dow componentBoeingdisappointed investors last week by reporting a six-month setback in the timetable for its 787 Dreamliner due to assembly problems. Hopefully, the news will be better when it reports its earnings. Analysts are expecting earnings to rise to $1.24 a share on revenue of $16 billion, Thomson said.

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Merrill Lynchresults will be watched closely. The company is among several financial firms that have already disclosed huge writedowns tied to the recent credit crunch. Merrill estimates its loss for the quarter will be $450 million, or 45 cents a share. Last year, the company reported net income of $3.17 a share. On average, analysts polled by Thomson expect $3.25 billion in revenue, down from $7.93 billion a year ago.

ConocoPhilips will offer investors an early glimpse at how the major oil companies are faring. Although oil prices have hit record highs in recent trading sessions, profits from the group are expected to be lower due to tight refining margins and lower natural gas prices.

According to Thomson, ConocoPhilips earnings are expected to fall to $2.19 on revenue of $71.35 billion.

Ford, Motorola, and Microsoft

Thursday:

Earnings reports will be coming fast and furious on Thursday, with Dow component Microsoft as well as Ford, Motorola,Sony, and Bristol-Myers among the key reports.

Motorola, which is in the midst of restructuring, is expected to report a decline in earnings. Analysts’ forecasts call for Motorola to post a profit of 4 cents a share on revenue of $8.8 billion, Thomson said. Investors will be looking for signs of improvement in the company’s handset division and to see whether consumers are buying its new products, including the Razr 2 cellphone.

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AutomakerFordis expected to post a loss of 47 cents a share on revenue of $33 billion, Thomson said. The loss is narrower than a year ago, as Ford continues to log progress in its turn around. In addition to monitoring Ford’s progress, investors will be hoping to hear more on how talks with the United Auto Workers are progressing on a new labor contract. General Motors workers recently ratified a new deal with the UAW and Chrysler reached a tentative agreement with the union.

After the bell comes news from Microsoft. Analysts are expecting to see double-digit percentage gains on both the top and bottom lines. Sales will be aided somewhat by the release of Microsoft’s popular new “Halo 3” video game for its Xbox video game system, which are credited with driving better-than-anticipated overall video game sale in September.

On average, analysts polled by Thomson Financial estimate Microsoft will earn 39 cents a share on revenue of $12.55 billion.

Friday:

The week ends with looks into the mortgage and housing market. Countrywide Financial and Brookfield Homes are both among those reporting their results.

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Countrywide, which is being investigated by the Securities and Exchange Commission for possible connections to the subprime fall-out and for stock sales by its CEO, is expected to swing to a loss of $1.05 a share on revenue of $254 million.

The nation’s largest mortgage lender has seen the total number of mortgage loans it has made or acquire plunge from year-ago levels. The decline in its business has forced it to shutter locations and lay off as much as 20% of its workforce.

Others reporting on Friday include oilfield services provider Baker Hughes, consumer products company Fortune Brands, and waste and environmental services provider Waste Management.

Christina Cheddar Berk is a news editor at CNBC.com. She can be reached at christina.cheddar-berk@nbcuni.com.

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