Three months into a robust market rally, it's still easy to forget that a stock's fundamentals can't always live up to its gains. After all, the economy is still in a rut, and not all earnings are on an upswing, as we'll see during next week's earnings reports. In fact, a lot of the companies delivering their quarterly results are expected to post year-over-year declines in profitability.

You may think you don't care, but guess what happens to market multiples if stock prices expand as profits contract. The past few months of market rallies have heightened expectations. Now comes the hurt.  

Let's go over a few of the blue chips and seemingly recession-proof companies that have analysts seeing downward-pointing arrows on the bottom line. Some of the names may surprise you.


Latest Quarter's EPS (Estimated)

Year-Ago Quarter's EPS

Adobe Systems (NASDAQ:ADBE)



Best Buy (NYSE:BBY)



Smithfield Foods (NYSE:SFD)



J.M. Smucker (NYSE:SJM)






Progress Software (NASDAQ:PRGS)






Source: Yahoo! Finance.

Clearing the table
There will probably be many more companies posting lower earnings next week, but these are just a few of the names that really jump out at me.

Adobe is the undisputed champ when it comes to desktop-publishing software. It has also finished ahead of Wall Street expectations, but analysts see a $0.15-per-share difference between the company's profit last year and this quarter's target.

Best Buy should be coasting right now. Its largest rival, Circuit City, has been liquidated, so it should be picking up market share. The retailer is also selling all of the latest hot consumer-electronics gadgetry, including netbooks and smartphones. Yet analysts think that higher sales won't translate into better profits when next week's report comes around.

Smithfield Foods and J.M. Smucker are food companies, toiling away in what's historically been an all-weather sector. When money is tight, hot dogs and peanut butter are value-priced supermarket staples. So why are both companies likely to take steps backward? Swine flu isn't doing Smithfield any favors, as its products contain pork, but the reasons seem less obvious for Smucker.

FedEx is another stumbling giant. The speedy deliverer has come undone recently, and the stock is selling for less than half of its all-time highs set two years ago.   

Progress Software is an enterprise-software company, specializing in application infrastructure solutions. It posted year-over-year gains on the bottom line during every single quarter in fiscal 2007 and 2008. Fiscal 2009 hasn't worked out as well so far.

Finally, CarMax has to fix a flat. The used-car dealer is slumping, despite the government's efforts to jump-start the auto-loan market. It may be the class act of the automotive-resale market, but CarMax can't do anything when drivers are holding on to their cars longer.

Why the long face, short seller?
These quarterly reports won't be pretty, but this news isn't a shock to Mr. Market. We're talking about analyst estimates here, so the bad news has already been baked into the stock prices. The real surprise would be healthy reports.

And we could get some. It wouldn't take much of a positive surprise for some of the seven companies, especially Best Buy and Smucker, to post a year-over-year improvement next week. Adobe has topped Wall Street's expectations in nine consecutive quarters, so the trend would suggest that it's unlikely to disappoint as badly as the market fears.

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

Some other reads to get you through the weekend:

Best Buy and FedEx are Motley Fool Stock Advisor picks. Best Buy, CarMax, and Smucker are Motley Fool Inside Value selections. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days

Longtime Fool contributor Rick Munarriz wonders whether his contrarian heart will ever be happy. He owns no shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.