5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

Everyone seems to agree that the fiscal cliff is a precipice worth avoiding, but there's no bipartisan agreement on how to tackle the situation. The news isn't just iffy on the macro level. This morning Hostess announced that it would be liquidating its operations. Twinkies? Wonder Bread? More than 18,000 jobs? 

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.

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Agilent Technologies.

The provider of measurement solutions for chemical analysis, life sciences, diagnostics, electronics, and communications reports on Monday morning. Analysts see a profit of $0.80 a share, just short of the $0.84 a share it posted a year earlier. Things aren't exactly dreadful at Agilent. Revenue is supposed to inch slightly higher. However, it did come up short on the bottom line three months ago.

Brocade offers fabric-based data-center networking solutions. Networking companies have generally had it rough during the economic lull. It's hard to make a living hooking people up when corporations worldwide are apprehensive about spending.

However, Brocade has history on its side. Sure, analysts see a slight dip in profitability, but have you seen Brocade's bottom-line performance lately? It has managed to surpass Wall Street's income forecasts in each of the past eight quarters. If Brocade is able to stretch that streak to nine quarters, it might even entail earning more than it did a year earlier.

Best Buy is a mess. There's really no way to sugarcoat the situation at the country's largest consumer electronics superstore chain. Investors may have been looking forward to the potential of an exit strategy when its ousted founder was talking about taking the retailer private in the mid-$20s, but then Best Buy's deteriorating performance and costly new CEO made it less likely that anyone would step up to bail the company out at that kind of premium. Then came last week's "Renew Blue" turnaround plan that didn't exactly wow the pros in attendance.

It's against this backdrop that the company steps up to its first full quarter of results under CEO Hubert Joly. Jaded analysts aren't holding out for much. They see Best Buy earning roughly a quarter of what it did during the pre-holiday and back-to-school quarter a year earlier.

Hewlett-Packard investors can't be encouraged by what they heard out of rival Dell (DELL +0.00%) yesterday afternoon. The PC maker posted double-digit declines in revenue and profitability. Analysts only see single-digit percentage declines when HP reports on Tuesday, but that still isn't where the company wants to be.

What's pointing HP in the wrong direction? There are plenty of factors. The global corporate economy is scaling back IT budgets. PC sales have been stagnant, largely as casual computer users turn to smartphones and tablets. Printing has always been a big part of HP's business, but who needs to print in this era of email and online sharing?

Yes, it's that bad for the box makers these days.

Finally, we have salesforce.com. This may be a surprising name on the list. The poster child of cloud computing has thrived over the years as companies turn to its enterprise software solutions that are cheaper and more portable than traditional software alternatives. Now, Salesforce isn't necessarily shrinking. Analysts see revenue soaring 33% for the quarter. It's just a matter of margin pressure holding back the bottom line.

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.