After two and a half fast and furious weeks, earnings season is finally starting to come to a close. As expected, the third-quarter reports have had plenty of surprises both positive and negative, and enough companies have weighed in with gloomy forecasts of future results that the entire market has stopped in its tracks and fallen sharply. Over the past three weeks, the Dow Jones Industrials (DJINDICES:^DJI) have fallen more than 500 points, and many are starting to believe that a full-blown correction may be in the cards.
Although many Dow stocks have already made their quarterly reports, the companies that are left could have a huge impact on whether the stock market continues downward or bounces off its recent lows. Let's look at each of the companies that are reporting their earnings this week and see what implications their results may have on the market as a whole.
On Tuesday morning, Pfizer starts the day off with its quarterly report. Analysts see the company's earnings coming in at $0.53 per share, a drop of about 15% from last year's third quarter.
Pfizer has done a better job than many expected in dealing with its patent cliff and minimizing revenue losses despite the loss of blockbuster drug Lipitor. Recent news that the company gained conditional approval for its lung-cancer drug Xalkori from the European Union is just the latest example of ways in which Pfizer has tried to replace lost sales. The strong dollar is likely to hurt earnings to some extent, but with the company having beaten estimates by a wide margin in the second quarter, a repeat performance could send the stock back toward multiyear highs.
Ford isn't part of the Dow, but as the only member of the U.S. Big 3 that avoided bankruptcy, it perhaps deserved to take General Motors' old place among the Industrials. Regardless, Ford also reports Tuesday morning before the open, with expectations for a 12% decrease in earnings to $0.30 per share on flat revenue.
Ford's Achilles' heel lately has been Europe, where the weak economy has caused ongoing problems for the entire auto industry. But the bigger long-range challenge that Ford faces is production capacity. The company has just about maxed out production of its some of its most popular models, and costly capital investments would be necessary to increase output. It will be interesting to see whether Ford gambles on the U.S. recovery by committing money toward expansion.
On Thursday, energy giant ExxonMobil weighs in before the market opens with its results. Thanks to slight declines in oil prices, the company is seen posting an 8% drop in year-over-year earnings per share to $1.96, with a much larger 10% drop in revenue.
That oil prices have declined is no big surprise, but the big concern comes from rising costs. With overall world economic growth appearing to slow down, energy investors also worry that a decrease in demand could take away a key support for energy prices. With so much of the exploratory activity in the industry hinging on current price levels, a sustained decrease could dramatically change the environment and lead to a major shift in the direction Exxon and its smaller peers choose for their future.
As counterpoint to Exxon's release, Chevron tells its own story on Friday. Its earnings-per-share decline is set to be much more severe than Exxon's, with analysts expecting a 22% drop to $2.85 per share on flat revenue.
Unlike Exxon, Chevron already warned investors a couple of weeks ago that its expectations for the third quarter were lower than most were predicting, pointing to production disruptions from Hurricane Isaac as well as an accident at its Richmond, Calif., refinery. But most of the same issues that Exxon is dealing with also apply to Chevron. Watch both reports to see whether energy in general is likely to rebound both in the rest of the year as well as 2013.
With Hurricane Sandy threatening the Northeast, this week could be a messy one for stocks if trading infrastructure gets hit by the storm. Nevertheless, keeping your eye on earnings will give you the best chance to get through whatever earnings season throws your way.
Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and ExxonMobil. Motley Fool newsletter services recommend Chevron and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.