Earnings Estimates--Lowering Shows Weakness Ahead

I'm back blogging after some time off. Here's what's happening so far today.

Any way you look at it, the main story today is lowering earnings estimates. Whether you look at Merrill slashing Citi's estimates, or Intel cutting its gross margin forecast, or downbeat comments from Barnes and Noble and Staples , the implications of the commentary on these companies is that things are not improving and, in some cases, weakness may continue into the second half of the year. Citigroup looks ready to open at a new multiyear low.

First problem: first quarter estimates dramatically reduced by Merrill Lynch.

Two things important here:

1) Analyst Guy Moszkowski is an ax in this space (influential) and

2) He went from having one of the highest estimates to the lowest in one fell swoop. Merrill says they expect a loss in the first quarter and that there may be $15 billion in additional subprime related writedowns, and an additional $3 billion in writedown from other investments.

Moszkowski cut his estimate for the quarter to a loss of $1.66 (he previously forecast a gain of $0.55); current consensus estimate for Citi's first quarter is a gain of $0.37 (this is before the Merrill cut). Full-year estimate falls to $0.24 from $2.74.

Second problem: Sameer Al Ansari, CEO of Dubai International Capital, the investment arm of Dubai, said Citi may need additional capital. Citi got a little over $7.5 b from Abu Dhabi four months ago and over $14 billion in January from other investors, including the Kuwait Investment Authority.

Barnes and Noble has projected earnings well below analyst expectations. They are projecting earnings of $1.70-$1.90 a share, well below analyst estimates of about $2.13 a share.

A lot of traders have been playing the "first-half bad, second half better" game, but Staples today came out and said they saw no improvement in the second half of the year.

Finally, Bank of Montreal (fifth largest bank in Canada) took writedowns of over $360 million and made higher allowances for credit losses.

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