Five companies to watch this earnings season

updated 1:15 p.m. ET July 12, 2009

NEW YORK - Investors want to see some new math in companies' quarterly 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 index down 7 percent from its peak in mid-June.

Analysts polled by Thomson Financial expect earnings for the S&P 500 companies fell an average 35.5 percent in the April-June 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 Inc. provided evidence that companies might still be relying on cost-cutting. The company on Wednesday turned in a narrower-than-expected loss for the quarter, crediting efforts to slash expenses and raise cash.

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

Yum Brands Inc.

• 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 cents per share on revenue of $2.5 billion. In the same quarter of last year, the company reported a profit of 45 cents 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.
• The quote: "I'm expecting a pretty high-quality quarter. Things are going OK in the U.S., and I think things are going a little bit better than planned in China," said Larry Miller, restaurant analyst with RBC Capital Markets.

IBM Corp.

• 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. But it can be tricky to read those results for clues about the broader economy. For one thing, IBM right now is booking revenue on contracts that may have been signed months or even years ago. Second, in a down economy, companies often turn to IBM's outsourcing services as a way to save money, so IBM's sales can go up even while everything else is going down.
• The best way to interpret IBM's results for signs of the health of the overall economy is in the company's overall forecast.
• When it will report: Thursday, July 16.
• What the experts say: On average, analysts polled by Thomson Reuters expect IBM to earn $2.02 per share on $23.58 billion in revenue. In the same quarter of last year, the company reported a profit of $1.98 per share on revenue of $26.8 billion.
• You'll know the economy is improving if: IBM's sales show some improvement that can't be attributed mainly to weakness in the dollar. Another encouraging sign would be if the company raises its already-bullish forecast for $9.20 per share in profit in 2009.
• You'll know the economy is not improving if: IBM backs off the forecast at all.
• The quote: Brian Marshall, an analyst with Broadpoint.AmTech, wrote in a research note Thursday that IBM's management has "navigated the turbulent "economic currents" over the past decade with fine stewardship," but cautioned there might be little room left for IBM to keep wringing out increases in its profit margin.

Marriott International Inc.

• Why it's important: Marriott operates more than 3,200 lodging properties worldwide, and the company's performance offers insight on travel trends and consumer spending. Demand for its hotel rooms and timeshare resorts has been weak, and investors are curious about whether business picked up with the approach of summer.
• When it will report: Thursday, July 16.
• What the experts say: On average, analysts polled by Thomson Reuters expect Marriott to post a profit of 22 cents per share on revenue of $2.54 billion. In the same quarter of last year, the company recorded a higher profit of 51 cents per share on revenue of $3.19 billion.
• You'll know the economy is improving if: Declines in hotel demand start to stabilize. If travelers are booking hotel rooms, it could mean consumer spending is increasing, despite continued layoffs nationwide.
• You'll know the economy is not improving if: Revenue per available room sinks during the quarter. Known in the industry as revpar, revenue per available room is considered a key gauge of a hotel operator's performance. Last quarter, revpar for Marriott's comparable company-operated properties dropped 19.6 percent.
• The quote: "In North America, you will see stabilization for room demand. Leisure travelers are still going on vacations but they're not going as far or not as long a period of time," said Mark Basham, a hotel and restaurant analyst with S&P Equity Research. In 2008, the company recorded 61 percent of revenue in North America.

MORE FROM U.S. BUSINESS

U.S. business Section Front

Where porn stars sing for their supper   Obama to lay out plan to combat joblessness Hasbro to make Sesame Street-brand toys NYT: U.S. forecasts smaller loss from bank bailout Five AIG execs say may quit over pay: report AOL goes it alone in split with Time Warner Apple confirms purchase of music site Lala Microsoft, Yahoo seal search deal FCC questions Verizon about doubling fee 12 companies that ace Twitter U.S. business Section Front   Add U.S. business headlines to your news reader: