Three weeks after Hurricane Katrina slammed the U.S. Gulf Coast, the storm's wreckage is starting to wash up on Wall Street.
Of the 16 negative earnings outlooks issued by U.S. companies last week, eight cited Katrina as at least of the reasons behind the warning, according to a report from Thomson First Call.
“This week, companies began to cite Hurricane Katrina as a negative impact on earnings,” Thomson First Call forecast in a note to clients. “As companies continue to better assess the financial impact of the hurricane, there will likely be an increase in negative pre-announcements and downward estimate revisions.”
The biggest and most immediate impact of Katrina is being felt by insurance companies. Three of the four biggest companies that had their earnings targets slashed by analysts last week were insurers: XL Capital Ltd., ACE Ltd., and Allstate Corp.
XL Capital, a Bermuda-based re-insurer, is now forecast to lose 27 cents (U.S.) a share, compared with an estimated loss of 11 cents a share on Sept. 9, according to analysts surveyed by Thomson First Call. Last week the company said its losses could amount to about 1.75 per cent of the total industry losses, which would be about $1.05-billion based on an estimated industry total hit of $60-billion.
The lower expected earnings growth from the insurance industry helped cut the third-quarter growth rate for the financials sector to 22 per cent from 25 per cent, Thomson First Call said. Despite the slower projected growth, financials still have the second-highest earnings expansion rate of any sector. (Energy leads with earnings expected to jump 64 per cent over last year's third quarter.) The consensus among analysts polled by the Boston-based research firm is that third-quarter profit among S&P 500 companies will rise a solid 17.6 per cent.
The negative-to-positive ratio for preannouncements among S&P 500 companies is at a historically average level of 2.0, meaning that two companies have warned for every one that has raised its outlook.
For the entire universe of companies covered by Thomson First Call, the preannouncement ratio has turned slightly negative, dropping from 2.3 to 2.2 last week.
Warnings continued Monday. Carnival Corp., the world's largest cruise-ship operator, said it expects to miss analyst consensus expectations for this quarter because of Katrina.
Last week, Mississippi Attorney General Jim Hood filed suit against five big insurers in that state in an attempt to force the companies to pay for flood damage from Hurricane Katrina, even if homeowners did not have flood insurance.
Hurricane Katrina, the most costly U.S. natural disaster, left at least 883 people dead after it devastated the southern U.S. on Aug. 29.
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.
