Updating the Earnings Picture

Those who have not yet drunken the Kool-Aid are watching with wry amusement the furious spin as earnings continue to come in mixed, with some surprising disappointments mixed in amongst the good profits. 

Last night, IBM (which I mentioned positively on CNBC yesterday) was the obvious winner, with good revenue and earnings growth, primarily as a result of their Software company acquisition spree.

Other companies are not showing good organic growth. There is quite a bit of finacial engineering going on. As their numbers mount, it becomes harder and harder to claim that all problems are company specific:

Yahoo:  hurt by slowing growth in its online advertising business — and competition with Google
Profits: They posted a nearly 40% drop in Q3 profits; net income dropped to $158.5 million (11 cents a share), down from $253.8 million (17 cents a share) a year earlier.
Guidance:  lowered sales projections for the fourth quarter
Financial Engineering: A $3 billion stock buy back was announced.
Special Notes: As we have previously warned, they were hit by changes in accounting for stock options

Intel:  The chip giant blamed a price war with AMD for its in line performance.
Profits: Q3 profit fell 35%
Guidance:  futures so bright we gotta wear shades
Financial Engineering: except for these guys: In September, Intel announced that it would lay off more than 10,000 employees.
Special Notes: This past Q saw Intel refresh its product line, announce lay off plans of more than 10 percent of its work force, and cut $5 billion in expenses.

Motorola:  Hurt by Weak Handset Sales; Revenue rose 17% to $10.6 billion from $9.05 billion — but fell short of Wall Street expectations.
: Q3 profit declines 45%,net income of $968 million, or 39 cents a share. That is down from $1.75 billion, or 69 cents a share
:   Lowered guidance to a revenue range of $11.8 b – $12.1 b, from Wall Street’s forecast of $12.1 billion.
Financial Engineering
: nothing mentioned

JPMorgan: the firm weathered a difficult interest-rate and market environment, with a big iBank revs offsetting the decline in retail and credit-card services.
Profits: Q3 profit rose 30%, thanks to record breaking investment-banking fees. Net revs rose 8% to $15.40 billion
Guidance:  conf call started at 9am; Stock trading down $1.10
Financial Engineering: JPM completed the swap of its corp trust unit for Bank of NY’s retail banks, but the $3b deal didn’t close by Sept. 30. They did complete the $1.2 billion sale of its life insurance and annuity unit.
Special Notes:  JPM was exposed to troubled hedge-fund Amaranth as one of Amaranth’s clearing brokers

Novellus:  semiconductor equipment maker held expenses in check, improving its margins.
: Q3 profit nearly tripled, exceeding analysts’ expectations. Revenue soared 31% GuidanceUh-oh: Forecast that revenue for its current quarter
would come in below analysts’ average estimate, pressuring its shares
lower in evening trading.
Financial Engineering
: "Results for the latest period didn’t include any unusual items"

Its interesting to note that Financials and Services are doing much better than semi-conductors and tech hardware . . . . 

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  1. Yaser Anwar commented on Oct 18

    Excellent recap Barry, thanks.

  2. Alfonso Vigliotti commented on Oct 18

    Just a hello from an old collegue. You may remeber, I once lent you a pair of my size 11-shoes… I’ve followed your postings and TV appearances and would like to say keep up the good work! All my best, Alfonso

  3. Michael C. commented on Oct 18

    Thanks, Barry. Great summary.

    But forget the negatives. Everyone wants to party today like its 1999.

  4. barry h commented on Oct 18

    Earnings are indeed interesting. I believe consensus is still > 10% overall….but who knows about 4th quarter or 1st quarter 07? I am mildly optimistic with energy prices down.

    Anyway..enjoy the moment. Dow over 12,000!! didn’t someone say 12,000 was years away?

  5. Mike_in_Fl commented on Oct 18

    I know it’s off-topic, but how about ‘da bonds?

    I hate to keep harping on the same thing … but look at the price action. Yesterday’s “great” decline in headline PPI caused bond prices to spike up … but they gave back almost all of those gains by the end of the day. Today’s big decline in headline CPI … and on-consensus increase in core CPI … caused bond prices to spike higher. Now, they’re trading back to flat. The “weak” jobs report several days ago? That got sold aggressively. Is the market telling us something, like A) Fleeting dreams of a Fed rate cut are fading fast and B) If the economy re-accelerates, how exactly will we see 2.9% YOY core inflation plunge below 2%, where the Fed wants it?

    Anyway, I have some more thoughts on the latest econ. data and interest rates available at my blog, if you’re “interest”ed (sorry, couldn’t help myself) …

    I’d also note, as Helene Meisler has at Realmoney.com recently, that the bank stocks haven’t exactly been doing so hot relative to the market lately. In fact, bank earnings news has generally been sold the past few days (WB, STI, etc.)

  6. Kris commented on Oct 18

    I’m in NYC and everyone I meet with is clearly into nothing but an increasing market. It’s similar to the socializtation of the stock market we felt back in 99 but to really hit the peak that we did in Q1 we needed an astounding set of earnings reports, which we got then, before the market peaked for good in April of 00.

    Things all around seem pretty so-so which is maybe just what everyone wants. Growth okay but not great. Inflation there but not too high. In that case bulls and bears will both get what they need to support their case but the market can just trend higher.

    Also it would seem that activities and projects in the corporate space are very robust, suggesting a busy Q4.

  7. Peter Pavlog commented on Oct 18

    The forward guidance from ASML and LLTC kinda stunk up the joint, too.

    It’s difficult to be upbeat when the semi’s and hardware aren’t really growing.

  8. muckdog commented on Oct 18

    Intel’s cap-ex spending plans were the alarming thing…

  9. donna commented on Oct 18

    JP Morgan is a scummy company. They’ve been holding off settling my mom’s estate for three years now, claiming they don’t know what to do with the timeshare properties I’ve already said I would take if needed.

    They can go suck eggs. I hate them. And I’m suing them.

  10. Michael M commented on Oct 19

    Is my memory slipping. If I recall correctly, it used to be that companies beat or miss by a penny or two. But this Q everybody is hitting it out of the park or missing badly. One of the best examples is AAPL. 22 of Wall Street’s finest thought EPS would be 0.46-0.55. A fairly big range of imagination. But they earned 0.63! I mean, these guys are worse than economists…

    Is this because companies had low visiability and afraid about a slowdown? Is it what happens when Wall Street doesn’t spend on research? Are we back to being friendly to potential clients in these M&A boom times. I don’t get it. Do you?

  11. Greg Feirman commented on Oct 24

    That 40% drop in earnings from Yahoo! has alot to do with stock options accounting. I know you mention that but the 40% number is literally meaningless since it is not an apples to apples comparison.

    If you use fair value stock options accounting for both quarters you get a 22% drop: $158 million vs. $203 million. If you don’t worry about stock options altogether you get a 9.2% drop: $238 million vs. $262 million.

    And if you look at Operating Cash Flow, and do an apples to apples comparison, it increased by 20%!

    Revenue was a bit light but this really wasn’t all that bad of a quarter for Yahoo! as I argued extensively on my blog (http://www.topgunfp.com/top-gun-gets-it-wrong-yahoo-reports-an-expected-mediocre-quarter-and-gets-hammered/).

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