A disappointing earnings season is worse than the bare numbers say

01/23/2014 7:41 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

So far in absolute numbers this earnings season could be called somewhat disappointing. About 50% of the 10% of Standard & Poor’s 500 companies that have reported earnings have beaten Wall Street estimates. That’s below the long-term average of 63% and well below the four-year average of 74%.

But I think the earnings season so far is actually more disappointing than that absolute underperformance suggests. Too many of the earnings beats are by just a penny or so and too many earnings surprising are coupled with misses on revenue. Others combine an earnings beat with a cut to guidance for the first quarter or all of 2014. And other companies are managing to report an earnings beat only thanks to a clearly one-time factor or a bit of financial engineering using, frequently, share buybacks.

With U.S. stocks ending 2013 at historical highs, investors just aren’t impressed with that kind of earnings beat.

Want some examples?

Johnson & Johnson (JNJ) reported earnings per share 4 cents above the analyst consensus. But the company forecast that 2014 earnings would be $5.75 to $5.85 a share. That’s below the Wall Street consensus estimate of $5.86 a share.

Abbott Laboratories (ABT), a Jubak’s Pick portfolio member http://jubakpicks.com/, reported earnings per share in line with estimates but revenue climbed just 0.4% and missed analyst estimates by $64 million.

US Bancorp (USB) managed to beat on earnings by a penny a share but revenue fell by 4.4% year over year and was just in line with estimates.

McDonald’s (MCD) beat on earnings by a penny, but revenue grew year over year by just 2% and came in $15 million short of Wall Street projections.

Verizon (VZ) beat analyst estimates by 4 cents a share but reported revenue $29 million below expectations.

Of course, this earnings season is also reporting the usual share of just plain bad results such as the 5 cents a share earnings and the $66 million revenue miss at Coach (COH.)

But truly positive reports, like the 11 cents a share earnings surprise at ASML Holding (ASML) with revenue growth of 81% year over year that put revenue $22 million above Wall Street estimates, have been light on the ground so far this quarter.

Which has put investors in such a funk about earnings and revenue—and the prospects of future earnings and revenue—that even an ASML falls on its news.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of December. For a full list of the stocks in the fund, see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

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