Updates: Downgrades Continue, Watch The Banks

We can expect to see more earnings downgrades this week with two of the major banks, the ANZ and Westpac, centre stage.

The ANZ is expected to lift earnings 5% to around $2.9 billion, Westpac will earn around flat profit around $3.2 billion, according to analysts.

But what will be of greater interest to investors is the outlooks both banks will offer.

Both are expected to be guarded on how they describe the next six months or so, but given the flow of downgrades we have already seen, many analysts would not be surprised to see some evidence of earnings growth erosion in their reports.

Certainly home lending has been weak; while business credit has hardly grown (we get an update on that later today from the private credit data from the Reserve Bank).

Interest rates, profit margins and costs will all be front and centre, especially as both report after the RBA's rate cut tomorrow.

The banks are likely to try and take another slice of whatever cut the RBA gives us, which will spark another round of criticism and concern from consumers (but not bank shareholders who want to see the banks as profitable as they can be).

In fact it will be odd if there's not a sign or a hint of earnings weakness in the banks, given the earnings downgrades flowing from leading companies.

Another company to watch out for will be Harvey Norman which is late in reporting its third quarter sales figures.

The company released them on April 21 in 2011, but so far they have yet to be sighted.

The six month figures were delayed two weeks until the release of the (lower) interim profit on February 29.

Analysts had expected them to be released as usual around April 20, but now expect the release today or later in the week and to show another sharp fall in sales growth.

That wouldn't surprise after Friday saw shares consumer electronics retailer JB Hi-Fi slump to a three-year low, after the group cut its full-year profit outlook.

It was the second earnings downgrade from the group in five months.

JB blamed heavy discounting for the downgrade as the need to push stock through its outlets has cut margins.

JB warned the hit to margins would reduce full-year net profit to between $100 million and $105 million.

That would be the lowest for three years and was below analysts' forecasts of $119 million for fiscal 2012.

The company earned a net profit of $109.7 million in 2010-11 which was down from the $118.7 earned in 2009-10.

JB shares fell 7% to an intraday low of $9.96 on Friday, closing down 67¢ or 6.3% at $10.04 - its lowest since March 2009.

In December JB plunged more than 16% - the biggest one-day fall since it floated in 2003 - after it issued downgraded first half earnings.

Sales did improve in the three months to March 31, and the company still expects to make $3.1 billion in sales for the full financial year.

Sales growth in the March quarter was 7.3%, but same-store sales growth was down 1.3% but that was better than the 2.2% fall in the six months to December.

The lowered profit forecast is based on a 2.5% fall in 4th quarter same store sales and no improvement in profit margins.

But market-wide discounting caused JB Hi-Fi's gross margin to fall by two percentage points in the three months to March.

"We anticipate that this level of discounting will continue over the next quarter, but we do not believe that this is a long-term structural change," chief executive Terry Smart said in a statement.

JB said its margins were also affected by the closing down sales of competitors' stores including Dick Smith Electronics, owned by Woolworths.

Meanwhile the slowdown has spread to the travel business: Jetset Travelworld (partly owned by Qantas) has warned that it has suffered from a softening in demand for travel in what should be its busiest trading period.

The group, whose brands include Harvey World Travel and Qantas Business Travel, also indicated it might be forced to write down the carrying value of some of its assets if trading conditions do not improve over the next two months.

Jetset said in a statement to the ASX on Friday that it was "reviewing all aspects of its business" in light of the tougher trading conditions.

The company highlighted that continued losses from its travel management business were worse than expected.

Shares in the tightly held company dropped 2c or more than 4% to 50c following the warning.

That took the fall in the price of its shares to more than 43% from the start of the year.

Qantas is the largest shareholder in Jetset with a 29% stake, while CVC Asia Pacific and UBS have holdings of 27% and 18% respectively.

Jetset said in its statement that it had expected trading conditions in March and April to be stronger than the same period last year but it said it had experienced a "softening in consumer demand in what is traditionally a strong trading period".

Although the number of transactions had increased year-on-year in both domestic and outbound air travel, Jetset said the value of its outbound sales was less due to weaker selling prices for international air tickets.

The company has a big exposure to outbound travel, and it said its total transaction value - the price at which travel products and services are sold - was below expectations for the period.

It has not given earnings guidance for this financial year.

In February, Jetset reported an after-tax profit of $11 million for the six months to December, compared with a profit of $1.3 million for the first half of the previous year.

And Coffey International shares ended down 17% on Friday after the group revealed heavy write-offs which will wipe out its 2011-12 earnings.

The company also warned that no improvement in its project management division could be expected any time soon.

Coffey shares ended down 10.5c at 49.5c at the close on Friday.

It said in its statement that the commercial property market remains tough, with this division to report only a break-even profit for the year.

A $37.4 million write-off in the worth of its project management business which, with other charges, will wipe out its revised forecast of earnings before interest, tax, depreciation and amortisation (EBITDA) of $39-41 million for the year to June.

Until now, the company had forecast an EBITDA profit of $45 million for the term.

"Commercial property market conditions are highly likely to remain depressed well into the medium term, making any meaningful earnings performance improvement very difficult to predict, the company said.

And one of the companies that downgraded its earnings earlier in the year, PMP, saw its shares surge on Friday after it revealed a mysterious approach.

Chairman Ian Fraser told the ASX on Friday that the board had received a highly conditional non-binding indicative offer for the purchase of PMP in a range between 68¢ to 78¢.

That valued PMP at up to $252 million.

The offer price range values PMP at three times the 25¢-a-share low the company was trading at last Tuesday after it announced a sharp fall in its 2011-12 profit forecast.

PMP shares closed 37¢ higher at 62c on Friday.

Mr Fraser would not say whether it was a trade buyer or private equity or give any details of the structure of the offer, and industry figures were split on the likely identity of the bidder.

"The directors are considering the approach and will keep the market informed of developments," Mr Fraser said in the statement.