Earnings reports for the first calendar quarter will begin flooding in next week, with Motorola
Given the continuing market carnage, investors will certainly be looking (hoping?) for some relief. Just a couple of upside surprises, and then we're back in business! Well, we'll see. Until then, here are a few things for investors to keep in mind as we enter this earnings season.
Don't rely on Greenspan
Who will come to save the day? Alan Greenspan? He with the ability to leap tall interest rates in a single bound? The reality is that Greenspan's recent wave of interest rate cuts won't have an immediate impact on anything more than your home refinancing plans -- which might, in time, take consumer confidence up a notch or two. Historical consensus has the trickle-down benefits of lower borrowing costs taking 2-3 quarters to truly kick in. Even with cheaper money to be had, many companies are apprehensive about sticking their necks out right now.
The problem is that most companies can't wait that long for the antidote to chase away the venom. Layoffs have become contagious. Clearly the restructurings are more than just time-buying band-aids. When even Disney
Telecom: Not much relief in sight
Don't expect the coming earnings season to smile upon any business that relies on telecom carriers having fat wallets. Suffering telcos such as AT&T
This began to play out last year with the first warnings from telecom supplier Nortel
Just as networking equipment companies have been hurt by the woes of telecom carriers, communications chip companies have in turn suffered, since in many cases their biggest buyers are the networkers. Cisco's
If not this quarter, when will things turn around for telecom carriers and their equipment suppliers? Who knows. But as long as the capital expenditures of the telecom carriers are hampered by large debt loads, related companies will suffer. -- Tom Jacobs (TMF Tom9) and Chris Rugaber (TMF Chris)
Software: Pent-up demand?
Beginning with Oracle
Overall, software companies that offer applications with a strong return on investment (ROI) proposition are best positioned for a rapid recovery. Usually, during tough times, businesses will seek out ways to cut costs and increase revenues. Mission critical applications -- such as supply chain management and customer relationship management software -- can deliver this through a rapid ROI.
This creates demand for enterprise software, which is less apparent as deals are delayed. While long-term demand for these software applications remains, investors in software companies may not see signs of it until the economy finally picks up again. -- Mike Trigg (TMF Tonto)
Not all earnings warnings are equal
These days, it seems that there are two types of companies -- those that have warned and those that will warn. Nevertheless, not all will warn for the same reason. You should be mindful of the difference between an unrealistic management and simple economic reality.
Unrealistic managements continually come out with big, brash earnings projections and then continually fail to achieve them. It is self-inflicted damage of the worst kind, and it is entirely avoidable. Yet, the tradition of overpromising and underdelivering still exists and has been disastrous for companies such as Lucent Technologies
The Earnings "X" Factors
We think we've seen it all, but quarter after quarter companies that report disappointing results invariably come up with newer, better, and more creative explanations. Downbeat earnings have been blamed on everything from bunker stockpiling (Y2K mania) to political upheaval (the Florida election mess) to can't-miss television events (the demises of JFK Jr. and Princess Diana).
If it sounds like we're making crass jokes at the expense of people's lives and our nation's dignity, you'd be wrong -- in this instance, anyway. All of these and more have really and truly been named as culprits by companies looking for reasons to explain away poor performance. We tried these kinds of excuses in grade school with our homework and were rewarded for our cleverness with a yardstick on the bottom.
What are we looking for this quarter? Well, there was just a pretty big basketball tournament. That ended in April, too, so look for some carry-over into Q2. Amerigo Vespucci's birthday may have held up shopping on March 9.
Oh, and I was slightly hung over on Saturday, March 10, and stayed home all day. Didn't spend a buck. My apologies to the economy. -- David Marino-Nachison (TMF Braden)
To see each writer's stock holdings, click on their TMF names. The Motley Fool is investors writing for investors.