This earnings season has a dark side

So far, companies are beating analyst expectations. But executives are downbeat about the current quarter.

By Jim J. Jubak Jan 28, 2013 3:12PM
Financial Stock Chart -- Kick Images, Photodisc, Getty ImagesAre we starting to see a pattern to earnings season? And does it point to problems not this quarter (as expected), but next?

About a third of the companies in the Standard & Poor's 500 Index ($INX) have reported through Monday. To date, S&P 500 earnings are up 6%. That's quite a bit better than the 2.5% earnings growth that analysts were expecting just before the start of the earnings season. About 61% of companies in the S&P 500 that have reported have come in above Wall Street earnings estimates.

The revenue picture is just as strong -- and that strength is more surprising. Sales for the S&P 500 companies that have reported are up 4%. At the start of the quarter, Wall Street analysts had grown very pessimistic. They were projecting revenue growth of just 2% for the quarter.

But there is one trend this earnings season that isn't quite so positive. Many companies that are reporting beats for the fourth quarter on earnings and revenue are then lowering guidance for the first quarter of 2013.

Caterpillar (CAT), which reported Monday morning before the market opened, is a good example of the trend. The company reported earnings of $1.91 a share (excluding a one time charge against goodwill). That was 19 cents a share above the Wall Street consensus. Revenue came in at $16.07 billion, just a bit shy of the $16.2 billion projection.

Of course, both "beats" were due to very low expectations for the quarter. Revenue, for example, fell 6.8% from the fourth quarter of 2011. The $1.91 a share that Caterpillar earned in the fourth quarter of 2012 was down from the $2.32 it reported in the fourth quarter of 2011.

But it was the company's guidance that hurt -- and that forms part of a worrying trend for the first quarter of 2013. Caterpillar told investors to expect revenue of just $14 billion in the first quarter (against a Wall Street consensus of $15.09 billion.) The company didn't give specific guidance for earnings in the first quarter of 2013 but told Wall Street to expect something lower than the $2.37 the company reported in the first quarter of 2012.

In giving that guidance for the first quarter of 2013, Caterpillar noted that dealers didn't finish working down excess inventory in the fourth quarter and had more to do before they began ordering again. Sales in China and the United States would pick up slightly but Europe remained a huge question mark.

To my ears, Caterpillar's remarks sound similar to what other companies have said about the first quarter. Listen carefully during the rest of earnings season to see if you hear a trend.

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At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

Tags: CAT
Jan 28, 2013 6:56PM
Why shouldn't  they lower estimates for next quarter when they have no idea what Washington is going to do about the Federal Budget deficit and who it's going to effect. Cut Defense, Education or Medicare? Until that's answered all companies can do is guess.
Jan 28, 2013 4:24PM
One Month or one quarter does not make a market. !!!
Jan 28, 2013 10:38PM
The trend won't mean a thing if reports of Iran had a nuclear meltdown are true.  The stock market will take a backseat to all the fallout.  Egypt is not looking so good either.  Japan still does not have the meltdown under control.  Our economy will stop in it's tracks if we don't have world peace.  With unemployment so high, it's just a matter of time before the average person takes matters in their own hands.  Then what?  Earning season won't mean squat!  That's the dark side.
Jan 29, 2013 12:15AM

I don't think this is about, WHAT money we "have been making" in the Markets..


As I've been reading other places it's about GUIDANCE, from Companies that have been Reporting..

There have also been inventories building up...

Retail sales over the Season weren't bad, but may have slowed..?

Going "forward"....Some are saying or warning(they don't usually use that word), don't expect as much at end of the 1st. quarter....As what has just been reported..

Good CEOs will give fair reports to shareholders and analysts, that's what makes them "good companies"....And many are expecting a correction or pullback..??

This may be the Harbinger....And Jubak is "no dummy."

But overall in 2013, I expect a decent year...12-15%(low end) lock solid by YE.

Jan 28, 2013 8:22PM

Executives are about 95% Republicans who are still bitter about the election.Earnings are

good and the market is up like 85% with Obama.These are the good old days.Those of

us in the market are enjoying are good fortune.

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