The economy is showing signs of fumbling the recovery.
Analysts now see the S&P 500's earnings -- the cumulative profit of the 500 components of the popular index -- actually posting a year-over-year decline in the third quarter. Optimists that were cheering on the housing market's recovery were also dealt a setback when pending home sales took a step back.
It's not just iffy news at the macro level.
There are more than a few companies that aren't pulling their own 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.
Latest Quarter EPS (Estimated)
Year-Ago Quarter EPS
|Electronic Arts (Nasdaq: EA )||($0.42)||($0.37)||Add|
|Vonage (NYSE: VG )||$0.07||$0.10||Add|
|Molycorp (NYSE: MCP )||$0.08||$0.52||Add|
|Pitney Bowes (NYSE: PBI )||$0.50||$0.52||Add|
|Smart Balance (Nasdaq: SMBL )||$0.05||$0.07||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Electronic Arts.
The video game industry has suffered through three years of declines, and EA has felt the pain. The nearly perpetual slide in hardware and software sales has likely been the handiwork of the mobile explosion. Diehard gamers may still be perfectly fine shelling out $60 for a new game, but most mainstream users are perfectly happy with a $0.99 copy of Angry Birds on their smartphones.
EA has made social gaming acquisitions and ported some of its properties to cash in on the casual gaming revolution, but the money to be made simply isn't the same.
The good news for Vonage is that at least it's now profitable. The pioneer of Web-based telephone service was suffering through year after year of deficits during its first few years as a public company. It's in a better place now, having scored a profit in 11 of its past 12 quarters.
The problem with Vonage is that analysts see the company posting its lowest quarterly profit in more than a year. It also doesn't help that Vonage has missed Wall Street's profit targets in two of the past three quarters.
Molycorp was a rock star when investors were going crazy for rare earth minerals. Sadly for the handful of specialists in this niche, prices for the minerals have taken a hit lately. The bullish argument centering around the scarcity of rare earth minerals is teetering, and Molycorp is now trading at a quarter of its 52-week high.
Pitney Bowes is the undisputed champ when it comes to metered mail, but it's easy to see where that can be a problem in these email-centric times. Expecting Pitney Bowes to see its revenue and earnings decline by 5% and 4% respectively isn't a shock.
However, Pitney Bowes has been coming through with annual dividend increases for decades. Its most recent hike came earlier this year, so the streak remains intact, but will the company be able to keep it going if profitability continues to go the wrong way?
Finally we have Smart Balance. Stroll through the supermarket dairy aisle and you'll run into the company's heart-healthy buttery spreads. They've been popular -- and growing market share -- for years.
The challenge for Smart Balance has been to cash in on that success, as rolling out related items including milk, sour cream, and even peanut butter haven't fared as well as its flagship spreads.
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 translates into higher earnings multiples, and nobody wants to see that happen.
The good news here 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.
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