RPT-ANALYSIS-CEOs give mixed economic signals in earnings talk

NEW YORK, Oct 23 - U.S. chief executives are sending mixed signals about the economic recovery in their earnings comments, making it harder for investors to gauge the outlook.

Soothing comments from many companies about an economy stabilizing and demand starting to pick up have been quickly followed by cautious comments that present a more worrisome picture.

They say the road to recovery will be difficult, even as companies are reporting third-quarter earnings that are handily beating expectations. With more earnings coming this week, investors may have to face more of the same guarded comments.

That could spark anxiety in investors who have been eager for proof that the benchmark Standard & Poor's Index can sustain its rally. The index is up about 60 percent since its 12-year low in early March, partly because of stronger-than-expected economic data and second-quarter results.

"There's a clear reluctance for anyone to become too optimistic either in their statements, or their forecasts, just because we've gone through such a tough period," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York. He added that "lawyers tell (CEOs) to be conservative."

Last week, Dow Chemical Co reported a 66 percent jump in third-quarter profit that beat expectations, and its stock rose, but the company's outlook wasn't all rosy.

"The economic outlook for the rest of 2009 appears to be stabilizing ... (but) our 2009/2010 operating plans do not count on material improvements in market conditions," Dow Chemical CEO Andrew Liveris said in the company's statement.

DON'T WAIT UP FOR SANTA

Meanwhile, chip maker Broadcom Corp reported revenue that topped average forecasts, but its fourth-quarter targets for revenue and profit margins failed to live up to investors' expectations. And the company's chief executive was even more glum in his comments.

Broadcom CEO Scott McGregor warned that the economy may not be out of the woods, noting, "There's a little concern about whether Santa's coming this year or not."

The comments come even as earnings estimates have improved sharply.

With results in from nearly 200 S&P companies so far, third-quarter earnings are now expected to fall 18.2 percent from a year ago, better than last week's estimate for a decline of 22.6 percent, and an improvement over the Oct. 1 estimate for a drop of 24.7 percent, according to Thomson Reuters data.

Some 81 percent of S&P 500 companies are beating earnings expectations, well above the 61 percent for a typical quarter, Thomson Reuters said.

And about 62 percent of S&P 500 companies are beating earnings expectations, according to Thomson Reuters.

Revenue is expected to decline 10.2 percent versus last week's expectation for a slide of 10.4 percent.

WARY OF THE BAR SET TOO LOW

But investors may be becoming more skeptical.

The three major U.S. stock indexes slipped last week for the first week in three -- and more bumps in the road could be coming, with 149 more S&P 500 companies set to report this week.

Among top companies reporting are the oil majors, Exxon Mobil Corp, Chevron and ConocoPhillips.

CEOs have also underpromised in the past, letting analysts publish earnings estimates that are easily beaten.

"We see earnings surprises every quarter because companies, especially over the last 10 years, have gotten very astute at reducing expectations and then beating them," said Barry Ritholtz, director of equity research at Fusion IQ in New York.

"But when you look at this, you ask yourself what is going on. We see the consumer coming out of their bunker, but not spending crazily."

Economists expect that the second quarter was the last one of falling output for the United States. They see third-quarter Gross Domestic Product rebounding at an annual rate of 3.2 percent, according to a Reuters poll of economists. The federal government's first look at third-quarter GDP is set for release this week.

Other data has pointed to economic improvement as well, indicating CEOs' views could be more on the conservative side.

CEOs "can guide us to a conservative view but ... it's only guidance," Johnson said. "You have to make adjustments based on your own knowledge of what's going on, and I believe forecasts for the economy and for earnings for the next 12 months are too low."