5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery. Greece is teetering. Protestors are disrupting annual meetings. CFOs are tweeting what may be considered inside information. Retail gurus are being exposed as mere mortals.

It's not just iffy news at the macro level. There are more than a few companies that aren't pulling their weight in this supposed economic recovery.

There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.

Company

Latest Quarter's EPS (Estimated)

Year-Ago Quarter's EPS

My Watchlist

Krispy Kreme (NYSE: KKD  ) $0.08 $0.13 Add
Take-Two Interactive (Nasdaq: TTWO  ) ($0.54) ($0.18) Add
Dell (Nasdaq: DELL  ) $0.46 $0.55 Add
Hewlett-Packard (NYSE: HPQ  ) $0.91 $1.24 Add
Flowers Foods (NYSE: FLO  ) $0.28 $0.33 Add

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Krispy Kreme.

The doughnut maker isn't just a fittingly dough-bellied poster child of Western decadence. On Monday, the company inked its first development deal in India. Maybe the international push will help shore up sluggish sales growth.

Yes, Wall Street's banking on Krispy Kreme to post a 7% uptick in revenue when it reports on Monday -- but those same pros see profitability falling sharply.

Take-Two Interactive is the video-game publisher behind Tuesday's release of Max Payne 3. It's also the company behind the Grand Theft Auto franchise, but good luck getting the company to spit out a release date for the next installment in that series. Even if the public did get a date, video-game developers have a funny way of delaying releases. Earlier this month Take-Two bumped the release of BioShock Infinite, the third installment in its futuristic shooter series.

Take-Two posted a loss a year ago, but this time Wall Street's counting on the renegade publisher to lose three times as much. Ouch!

Dell and HP are the country's two largest computer makers, and their industry has been having a hard time lately, as the global economic malaise has slowed sales. There's also the trend toward "smart enough" computing, as consumers turn to tablets and smartphones to achieve basic computing tasks.

Seeing Dell and HP feel the pinch of a slowing market that's getting overly competitive isn't a surprise. However, the good news for HP is that it's been gaining market share lately. Industry tracker Gartner even found HP PCs growing faster than Macs! Unfortunately for both Dell and HP, the bottom line is going the wrong way.  

Flowers Foods knows how to bake. Its sliced bread, sweet treats, and Mexican tortillas are supermarket staples under brands you probably know, including Nature's Own, Blue Bird, and Tastykake. Analysts see the baked-goods giant posting a slight dip in profitability, but the trend isn't its friend.

Flowers Foods has missed Wall Street's profit targets in  two of its three previous quarters. It hasn't even been close, with both misses finding the company off by double-digit percentage margins pitted against market expectations.

Sure, the bakery behemoth knows how to make dough rise -- but not on the bottom line this time around.

Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translate into higher earnings multiples, and nobody wants to see that happen.

The good news is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.

The more I think about it, the less worried I become.

If five reasons to worry aren't enough, let's make your future No.6. There's a single shocking truth about your retirement that you may not know. It's part of a free report that won't be around forever, so check it out now.

Motley Fool newsletter services have recommended buying shares of Dell, Take-Two Interactive Software, and Flowers Foods. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 18, 2012, at 10:30 AM, wcolasc wrote:

    This column is misleading.

    Analysts are forecasting a 6.5% increase in Kripsy Kreme sales for the first quarter and a 38.5% decrease in earnings. The primary cause of this decline in the reported earnings, however, is an increase in the tax rate on the company's earings, not a change in the fundamental operations of the business.

    It is also important to note that the higher income tax rate for Krispy Kreme will be a non-cash event for this quarter and the forseeable future. Due to a litany of negative earnings reports over the last decade, the company can offset almost completely the effect of its higher income tax rate.

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