Earnings: What to Watch For This Week

Second-quarter earnings reports from Yum Brands, IBM, Marriott, Harley-Davidson, Bank of America, and GE will provide a snapshot of the economy

By the Associated Press

Investors want to see some new math in companies' quarterly earnings reports. No longer content with an economy that's limping toward recovery, the stock market is looking for signs that business improved in the second quarter or at least will in the coming months. And investors will measure that by the revenue figures companies put up as they issue earnings reports during the next four weeks.

Stocks punched higher in March when a handful of companies said profits for the first three months of the year wouldn't be as dismal as feared. But many businesses achieved better-than-expected results by slashing costs, including payrolls.

Now Wall Street wants to see signs that companies are selling more goods and services—for the health of the corporations themselves and for the overall economy. But investors are already on the pessimistic side about earnings, and that has already pulled the Standard & Poor's 500-stock index down 7% from its peak in mid-June.

Q2 Earnings for S&P 500 Companies

Analysts polled by Thomson Reuters (TRI) expect earnings for the S&P 500 companies fell an average 35.5% in the April-June quarter from a year earlier after falling the same amount in the first quarter.

Stocks could retreat further if companies don't provide some morsels of hope about the economy, said Jennifer Ellison, a principal at Bingham, Osborn & Scarborough in San Francisco.

"If we get some earnings surprises on the downside it could deflate the balloon," she said.

The early read from Alcoa (AA) provided evidence that companies might still be relying on cost-cutting. The company on July 8 turned in a narrower-than-expected loss for the quarter, crediting efforts to slash expenses and raise cash.

Here are six companies that will report earnings this week. Each provides a snapshot of the economy.

Yum Brands (YUM)

Why it's important: With chains including KFC, Pizza Hut, Taco Bell, Long John Silver's, and A&W All-American Food, Yum's 36,000 restaurants span 110 countries and territories. Fast-food chains tend to weather economic downturns better than sit-down restaurants because their food is cheaper.

When it will report: Tuesday, July 14.

What the experts say: On average, analysts polled by Thomson Reuters expect Yum to post a profit of 43¢ per share on revenue of $2.5 billion. In the same quarter of last year, the company reported a profit of 45¢ per share on revenue of nearly $2.7 billion.

You'll know the economy is improving if: Yum's performance improves in its sluggish U.S. operations, especially at brands such as Pizza Hut that generally have higher customer checks. Better results at Pizza Hut and KFC—which has a sizable sit-down business—would signal that more people are opting to eat out rather than cook at home.

You'll know the economy is not improving if: Yum's U.S. operations falter, especially at its higher-priced chains. Weak sales in Yum's important China operations would be a sign of sluggishness in the global economy.

IBM (IBM)

Why it's important: As one of the world's largest corporate technology suppliers, IBM's results say a lot about how much businesses are willing to spend on everything from computer servers to software and consulting services.

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