We're just dipping our toes into earnings season. Why is the water so cold?
The economy is showing signs of fumbling the recovery. Existing home sales fell in March, new claims for unemployment benefits clocked in ahead of economist estimates, and there was that pesky regional report showing a decline in factory activity.
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
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Netflix.
The leading video service has fallen a long way since peaking at just above $300 last summer, and now comes the red ink for the company behind the red mailers.
Expanding into Ireland and the United Kingdom was the original reason that the company was targeting a deficit for this year's first quarter, though the continuing flow of defections from its DVD-based subscribers isn't helping.
The good news for Netflix is that streaming customers bounced back during the fourth quarter, and that trend should continue through 2012. However, Monday afternoon's report will hopefully deliver some clues as to when the company sees a return to profitability.
iRobot leads two exciting lives. For consumers, iRobot is the company behind the Roomba. The vacuum-cleaning orbs are joined by other products in the iRobot family that mop floors, flush leaves out of rain gutters, and clean up pools. On the military front, iRobot's PackBot is a rugged all-terrain automaton that can perform surveillance and even detonate roadside bombs.
iRobot has been blowing past Wall Street's profit targets with ease lately. It's on a streak of 10 consecutive quarters of beating analyst expectations by a double-digit margin or better. However, Tuesday's report isn't likely to be as scintillating. Analysts see iRobot posting its first quarterly deficit in nearly three years.
Sprint Nextel runs the country's third-largest wireless carrier. Unfortunately, it's also the largest unprofitable wireless carrier. The pros don't see that changing anytime soon. Wall Street's banking on the red ink continuing until 2015.
Amazon.com has never had a problem getting bigger. The leading online retailer is eyeing sales growth of a little better than 30% over the past three months. The rub here is that Amazon has made it clear that it's willing to sacrifice margins in the near term in order to grow its Kindle and Kindle Fire businesses.
Investors have been patient, but how long will that last?
Finally, we have RadioShack. Three months ago, the small-box retailer stunned shareholders with a horrendous quarterly report. Selling the wrong smartphones -- hint, hint, iPhones -- crushed margins for a company that has spent the past couple of years shifting its stores toward mobile gadgets and away from traditional consumer electronics.
Another dud of a quarter won't surprise the market this time around, but we certainly know that things can always get worse.
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 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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The Motley Fool owns shares of Amazon.com and RadioShack. Motley Fool newsletter services have recommended buying shares of iRobot, Netflix, and Amazon.com. The Motley Fool has a disclosure policy. We Fools may not 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 does not own shares in any of the stocks in this story, except for Netflix. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.