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8 Reasons to Hate Earnings Season

By Rick Munarriz – Oct 11, 2012 at 12:16PM

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This is shaping up to be a fall to forget.

Autumn is in the air, and it's not just the leaves that will be losing their green in the coming weeks.

The Wall Street Journal is reporting that -- for the first time in nearly three years -- companies in the S&P 500 are expected to post an overall decline in profitability.

Thomson Reuters sees a 2.9% decline in earnings. S&P Capital IQ sees a slightly smaller deficit. However, both analyst trackers do see companies, on average, posting lower net income this time around.

In other words, earnings season has never been this scary.

Is the economy starting to falter? Have companies simply run out of fat to trim away? Every company has a unique story to tell, but let's take a look at some of the companies that are projected to post lower profits when they report in the coming weeks.


Latest-Quarter EPS (Estimated)

Year-Ago Quarter EPS

My Watchlist

Windstream (WINMQ)




Amarin (AMRN -8.22%)




Alcatel-Lucent (NYSE: ALU)




Hasbro (HAS -1.33%)




SandRidge Energy (NYSE: SD)




Pitney Bowes (PBI -2.51%)








Dangdang (DANG)




Source: Thomson Reuters.

We're going down
Windstream is a regional telecom that has become an income investor darling. With its chunky yield of 9.9%, it's easy to see the appeal. However, a payout is only as sustainable as a company's profitability. This is shaping up to be the third consecutive quarter of a year-over-year dip in net income.

Amarin's projected loss may not seem to be too much of a problem. After all, the company has been one of the market's bigger winners -- a better than 20-bagger since bottoming out three years ago -- on the potential of its FDA-approved triglyceride-reducing drug, Vascepa. Folks are buying into Amarin for what it will be in the future, and not necessarily what it is right now.

Alcatel-Lucent is coming off its first quarterly deficit in a year, and the market's braced for a repeat performance. Alcatel-Lucent isn't the only telecom equipment maker to be struggling, but that's not a convincing argument in favor of Alcatel-Lucent, either.

Hasbro is the country's second-largest toy maker, and the company behind Mr. Potato Head, Play-Doh, and Monopoly isn't winning the game these days. Wall Street sees a slight dip in earnings on flat revenue growth. That's not what investors like to see heading into the telltale holiday shopping season as retailers stock up on what they believe will be the hottest toys.

SandRidge Energy is an emerging oil and gas junior. There are plenty of opportunities opening up for SandRidge, but theyr'e apparently not materializing on its bottom line. The pros see the company merely breaking even despite a 46% top-line surge.

Pitney Bowes has a pretty understandable predicament. It's the undisputed champ of a dying industry. Metered mail may have been great in the past, but the way we correspond with one another has changed in this age of faxes and email missives.

VIVUS is one of the handful of potentially promising biotech companies looking to conquer obesity. You know what's pretty fat these days, though? VIVUS' chunky losses. Sure, investors are willing to overlook the near-term red ink; shares of VIVUS have actually more than doubled this year alone. However, sooner or later, it's going to have to shape up on its income statement.

Finally, we have Dangdang. The Chinese online retailer was a hot IPO when it went public two years ago, but its inability to contain costs while growing its business have weighed on both the stock and its financial reports.

More than meets the slide
There's more bad news.

Many of these companies -- Windstream, Amarin, Alcatel-Lucent, VIVUS, and Dangdang -- actually missed Wall Street's profit targets a quarter ago. In other words, even the declines that are being projected right now may be too optimistic.

Thankfully there's also good news here. Some of these companies are still growing on the top line. Others have encouraging long-term prospects. However, since this earnings season is starting to look like a very dangerous minefield, you may want to avoid some of the more likely disappointers right now.

Wait until the leaves change colors -- and fall -- before breaking out the rake.



Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Hasbro. Motley Fool newsletter services recommend Hasbro. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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