Earnings Season Approaches! Four Things to Watch For

Fortune writer Nin-Hai Tseng gives us four things to watch for this earnings season (which begins tonight with Alcoa).

The one I believe will be most pressing is this:

Fuel costs

Sales may be robust, but paying higher fuel costs to do everything from transporting materials to running machines at factories is expected to erode profits at many big companies.

The average weekly price for Brent oil was $118.86 at the beginning of this year – markedly higher than the average $106.27 recorded around the same period last year.

FactSet senior earnings analyst John Butters expects that 104 companies in the S&P will see healthy growth in sales during the first quarter, but also a decline in earnings. Excluding banks and other financial companies, net profit margins is expected to come in at 8.4%, the lowest since the first quarter of 2010.

Butters adds that consumer-focused companies, such as Nike (NKE), General Mills (GIS), maker of Cheerios and Yoplait yogurt, as well as Carnival (CCL) cruise lines, are especially vulnerable.

And while the U.S. airline industry managed to turn profits amid soaring fuel prices last year, raising ticket prices and fees might not help cushion margins this year. Fuel costs could cause profits across the world’s airline industry to plunge 62%, according to the International Air Transport Association’s March report. That’s a bigger drop than the trade group predicted five months ago. It forecasts that carriers’ net profit could fall to $3 billion in 2012 from $7.9 billion last year.

Head over for the other three…

Source:

4 signs to watch this earnings season (Fortune)