Crude oil is getting a boost on trade deal hopes as well as a week of optimism that global central b...
The Tyranny of Low Expectations
02/22/2010 5:28 pm EST
So, when does beating low expectations stop counting as good news?
It’s an important question for the stock market and the economy as a whole. After easy-to-beat earnings comparisons in the first and second quarters, stocks face a bigger challenge in the third and fourth quarters of 2010 as they pass the absolute bottom for the economy. (For more on how earnings comparisons get tougher as 2010 goes along, see this post.)
Today, February 22, before the stock market opened, Lowe's (NYSE: LOW) reported fourth quarter 2009 earnings of 14 cents a share and revenue of $10.17 billion. The results were above Wall Street expectations of 12 cents a share in earnings and $10 billion in revenue, but below the company’s own guidance for 15 cents a share and $10.3 billion in revenue.
Confusing picture, no?
Well, it doesn’t get any better if you dig a little deeper. Comparable store sales fell 1.6%, but Wall Street had expected that comps would fall by 2%. This is the smallest drop in comparable sales since the second quarter of 2006.
Lowe’s chief executive officer, Robert Niblock, told investors that the worst is behind the company—which isn’t, apparently, the same as saying that things are actually going to be good.
The company guided Wall Street to expect same-store sales to be flat to down 2% in the first quarter of 2010. That compares with the current Wall Street consensus of a 1.5% decline in first quarter comparable sales. For the full year, Lowe’s projects comparable store sales to climb 1% to 3%. The consensus before the conference call was for a 1% to 2% increase for the full year.
Earnings guidance for 2010 of $1.30 to $1.42 per share compares to Wall Street expectations for $1.37 a share.
Don’t know about you, but an increase of 1% to 3% in comparable store sales isn’t exactly the huge growth I’d expect coming off a bottom for the homebuilding sector.
All of which leaves me asking: Was this good news or bad?
Full disclosure: I don’t own shares of any company mentioned in this story.
Related Articles on MARKETS
We called this market exhausted at our major three-star resistance at 2603-2609.50 says Bill Baruch,...
The electric utility business at CMS Energy Corp. (CMS) provides a stable earnings stream supported ...
Cancer has long been a scourge of humankind and treatments and/or cures have always been iffy becaus...