Fasten your seat belts: By the looks of things so far we’re in for a bumpy earnings season.
Third-quarter financial reports have barely started trickling out, but the market already has gyrated not only to Q3 performance but to longer-range forecasts that indicate growth may slow for some sectors.
Hewlett-Packard CEO Meg Whitman’s pronouncement that the computer-maker would miss its 2013 forecast — on the heels of a dim third-quarter result — sent the company’s shares to a 10-year low and dragged Dell down too, as Bloomberg Businessweek reports. Zynga, the social game maker, has projected a Q3 loss of $90 million or more and a downscaled full-year outlook.
In fact, Investors Business Daily offers a gloomy outlook for many tech sector stocks, and CNBC quotes one analyst’s remarks that this earnings season may be among the most dismal since the post-recession recovery started.
Global market and economic uncertainty is partly to blame, as the Associated Press reported back in July, and as FedEx noted in cutting its own estimate. In other cases, domestic woes are at fault, like Walgreen’s dip on its dispute with the Express Scripts benefits plan.
So how can you translate this into meaningful information for readers?
Here’s a transcript from an Ausgust “Mad Money” show, with host Jim Cramer explaining how individual investors can make sense of earnings season; many of the hypothetical questions he poses would make for good interview questions you can use with local execs. For example, input costs like food for a restaurant chain or metals for manufacturers can affect profits — and getting company managers to explain the nuts and bolts of those commodity supply and cost variations can make for stories consumers can relate too. Here, for example, CFO Magazine alludes to this past summer’s drought and its effect on feed costs, and hence the profitability of an egg-producing firm. (Of course, you have to make sure that external events like weather and commodity prices aren’t being used as scapegoats for bad underlying practices; checking in with equity analysts and regulators will help balance coverage.)
If nothing else, earnings season is a toe in the door to senior management interviews you might not be able to get at other times of the year, so use them as a relationship-builder when possible. And of course, you can analyze broader patterns in earnings to see if they’re reflected in your local economy. Marriott, for example, reported a more-than-expected profit last week and hotel stocks in general have gained recently; if tourism is a big driver in your area you might want to check in with operators about how their outlook compares to the global players. Family Dollar stores are meeting profit expectations and Dollar General profits soared 47 percent in its most recent report; how are your area’s strip center and Main Street retailers competing with these value-priced and growing chains?
Earnings calendars are offered by Bloomberg, Yahoo! and other financial sites so you can plot out your coverage now. And if you find corporate filings daunting, be sure to check out one of the Reynolds Center’s free online and/or archived seminars, like the recent “Dig Deeper: Ratios and Red Flags in Financial Statements.”