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5 Reasons to Worry About Next Week

By Rick Munarriz - Apr 19, 2013 at 6:15PM

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These five companies are projected to post declines in profitability in their upcoming quarterly reports.

The economy is showing signs of fumbling the recovery.

For the first time in seven months, the Conference Board Leading Economic Index declined in March. Another problematic report shows new claims for unemployment benefits are on the rise.

The news isn't just iffy on the macro level. There are also 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.

Company

Latest Quarter EPS (estimated)

Year-Ago Quarter EPS

Apple (AAPL 4.08%)

$10.13

$12.30

Cliffs Natural Resources (CLF 4.73%)

$0.32

$0.85

Corning (GLW 2.00%)

$0.24

$0.30

SUPERVALU (SVU)

$0.18

$0.38

Linn Energy (LINEQ)

$0.24

$0.25

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Apple. All eyes are on the consumer tech giant after it hit another new 52-week low yesterday. Apple's margins are contracting as shoppers continue to choose cheaper iPad mini tablets and older iPhone smartphones over its higher-priced new models.

Revenue is still growing at Apple, but narrowing margins should result in a significant drop in profitability in Tuesday's report.

Cliffs Natural Resources has seen better days. The iron-ore miner announced last month that it was halting production at a Canadian iron-ore pellet plan, and that was followed a few days later by Morgan Stanley and Credit Suisse slashing their price targets for the stock.

Cliffs has been one of this year's biggest losers, shedding nearly 55% of its value. It doesn't help when you've missed on the bottom line in each of the past four quarters.

Corning is another company heading the wrong way on the bottom line. Analysts see the global leader in specialty glass and ceramics posting mixed results with revenue inching up slightly, but net income taking a hit.

Yes, Corning's Gorilla Glass is a hot product for smartphone makers, but you can probably imagine that Corning isn't selling a lot of PC monitors and LCD television screens these days.

SUPERVALU is the troubled supermarket operator that recently closed on a $3.3 million deal for five of its grocery store chains. Naturally, SUPERVALU will be a smaller player now, but the deal itself didn't close until late March. There are other factors weighing on the retailer's margins. Supermarkets operate on thin markups, and it's not always easy to pass on price increases to shoppers when warehouse clubs and discount department stores continue to ramp up their grocery offerings. 

Finally, we have Linn Energy. Linn is one of the country's largest independent oil and natural gas developers. This is the most likely of the five companies to actually post a year-over-year increase in profitability next week. For starters, analysts are only banking on a minor dip in profitability. They see Linn earning $0.24 a share after posting a profit of $0.25 a share a year earlier. Another thing working in its favor is that it has beaten Wall Street's profit projections in back-to-back quarters heading into Thursday's report.

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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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$149.64 (4.08%) $5.86
SUPERVALU Inc. Stock Quote
SUPERVALU Inc.
SVU
Cliffs Natural Resources Inc. Stock Quote
Cliffs Natural Resources Inc.
CLF
$24.57 (4.73%) $1.11
Corning Incorporated Stock Quote
Corning Incorporated
GLW
$35.65 (2.00%) $0.70
Linn Energy, LLC Stock Quote
Linn Energy, LLC
LINEQ

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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