This quarter is proving that mediocre corporate earnings are sometimes good enough to appease Wall Street.
) reported Tuesday that
profit rose 20% to $96.2 million, or 28 cents a share, as price increases offset rising costs for raw materials even though revenue was little changed at $1.16 billion. Goldman Sachs'
net income plunged 12% to $962 million, or $1.78 per share. Revenue at the New York investment bank fell 9% to $6.63 billion. Coca-Cola
quarterly profit barely budged and revenue rose 2.7% to $13.09 billion.
Yet these are all Wall Street "winners."
The numbers from Mattel, Goldman Sachs and Coca-Cola underscore the silliness of earnings season -- a dance every quarter in which billion-dollar companies attempt to hit a target devised by a dozen or so people. A company's underlying performance is secondary as long as expectations are met. At times, especially with high-flying tech stocks, investors will demand not just a "beat," but a large beat.
Warren Buffett has argued for years that the game of managing earnings expectations encourages companies to think about short-term gain. Of course he's right. Heaven help the corporation that announces plans to invest in its business for the long haul instead of boosting the dividend or some other short-term fix. They will surely be punished and their shares beaten down in the stock market.
Investors should take no comfort in the earnings beats at Mattel, Goldman Sachs and Coca-Cola because the results may not be sustainable. The latest economic data is not encouraging. Consumer sentiment fell to unexpected lows in the most recent quarter, which could mean a disastrous holiday season for retailers. Growth in China, a key U.S. market, is slowing, though it's difficult to say to what extent given Beijing's tendency to color the truth. The crisis in Europe seems to never go away, as does the threat of the U.S. economy diving off a fiscal cliff. Optimism is in short supply and will be for a while.
Let me clear: Quarterly earnings are important, as is the opinion of Wall Street. But they aren't everything. What gets lost in the earnings expectations game is that terrible earnings are still terrible earnings, even if they are not as awful as some had expected.
--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.