Why The Real Earnings Picture Is Bad And Getting Worse

Tyler Durden's picture

Listening to the incessant chatter of confirmation bias from CNBC, you could be forgiven for thinking that earnings are 'not that bad'. Headline-makers like AMZN, GOOG, and AAPL scare for a few moments but we are reassured back to numb BTFD-land by some disingenuous analyst (or worse a PM) who says he is buying with both hands and feet. The misleadingly top-down positive impression of looking at a 'beats-to-total ratio', suffers from one rather annoying bias (that often gets forgotten):  analysts constantly revising their expectations throughout the reporting period, and hence rarely deviates from the current level of 71%. But, as Citi notes, if one examines results relative to analyst expectations prior to the reporting season, it's clear just how disappointing Q3 has been - especially given the sell-side mark-downs already factored-in.


If one uses unrevised expectations - which simply anchor lower and make every succeeding number look relatively better and better as earnings season progresses in one direction or another -  then the S&P 500's earning surprises are even worse than Q2 - making the sixth quarter in a row of 'missed' pre-expectations...


Via Citi:

Third quarter earnings have surprised to the downside even more than in the second quarter.


What's more, earnings have been particularly disappointing given that sell-side expectations already underwent significant downward revisions months ago.  Indeed, the bottom-up estimate for S&P500 third quarter earnings per share dropped quite precipitously from above 28 down to 26.5 in July as management teams lowered their own guidance. Intriguingly, for as downbeat as third quarter results have been, we've yet to see the sell-side revise down estimates for next quarter or 2013 (see chart).




That could be an ominous sign given that the commentary on many a third quarter earnings call has been so cautious, particularly with respect to the fiscal cliff. Qualitatively speaking, we worry that with almost all companies missing top line revenue targets (most notably OC, AVT, NSC, LLY), fourth quarter earnings may end up disappointing sell-side analyst even more than Q3. Moreover, the weakness we’ve seen in the basics/cyclicals as a result of slower growth in China and Europe (DD, DOW, FCX) and the headwind that sequestration looks like it will pose to the defense industry (NOC, GD, LMT) create potentially formidable challenges for those sectors in particular.

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reTARD's picture

But government supplemental programs and safety nets like SNAP, social security, healthcare reform and hopefully free, universal healthcare should offset lower earnings. /sarc

GetZeeGold's picture



Screw this market crap.....I'm buying AAPL.


lotsoffun's picture

but, but, you really don't understand.  it would have been so much worse.  for jamie and lloyd and bennie and timmie.  and let's not forget the hand puppet.  big bad bama.  this clown HAS to go.

he's so stupid - he couldn't even find a democratic equivalent of bust em' up bennie - he kept the bush guys in.









whatsinaname's picture

Will next quarter's earnings show an uptick thanks to the Euro upliftment ?

hannah's picture

anyone that uses 'expectations' of any kind deserve to lose their money.....

icanhasbailout's picture

A fool and his expectations...

Miss Expectations's picture

A happy, talkative man, the Whether Man explains to Milo that Expectations is where you have to go before you go anywhere else. Some people, the Whether Man explains, never get beyond Expectations, but anyone who is going anywhere must go through Expectations first.

The Phantom Tollbooth

jeff montanye's picture

speaking of expectations and surprises and beats and all, john hussman highlights an interesting phenomenon, the regular sine wave of 44 weeks (or something) of rising and falling economic expectations.  take a look at the first graph.  he has written earlier about this.


The Wizard of Oz's picture


e-man's picture

I'm starting to believe that earnings will soon become another barbarous relic from the past.   Clearly, the Fed can print as many earnings as need be, in 15 minutes or less.

muppet_master's picture

reid = the alcoholic gets in CAR "accident"

he and odummer are driving the US into a ditch !! quick someone take away their keys !!


in other news, did anyone buy FLOPBOOK @ $24.5 two days ago???its now SUB $22.00 !! if they pump to $26 will short heavily....if not that's ok....i'm already heavily short spx (1450 avg short price) and eur 1.315 avg short price.


MrBoompi's picture

Do robots care about earnings?

PAWNMAN's picture

I'm embarrassed to say that I've been watching CNBC for over 20 years, mostly now only for comic relief. Pisani, Kudlow and the like, are ALWAYS bullish, with Kramer being the absolute worst offender. Does anyone remember that infamous Bear Stearns call? How this guy is in front of a camera, and not behind bars is beyond me.

blunderdog's picture

Why would he be behind bars?  It's not like he's done anything wrong--he just hosts a comedy show.

If it's on teevee, IT'S NOT REAL.

muppet_master's picture

is that the crank-a-holic

clown that said:

1) buy SLV @ $45....near the top (now $31)

2)  buy NFLX @ $300 (now $60)

3)  buy chipotle @ $500 (now $200 or so)

4) buy aapl @ $630 bc "$1000 makes arithmetic sense"

5) floopbok at IPO $45..now $22 and heading to $5.00

yup, u can't be sent to jail for having a comedy show...its the stupid idiots that listen to clowns !! LOL !!! do OPPOSITE of what the clowns tell you to do !!

lunaticfringe's picture

I can top the Bear Stearns call. One night, Cramer has the great crook- Angelo Mozilo- on his show. At the time I was short Countrywide. Mozilo is selling everything he owns- I had been watching it for months. Cramer says Countrywide is a great company and hey..."Mozilo is entitled to take a little money off the table."

Countrywide went bankrupt. I covered my short position too early.

Perhaps the greatest mortgage fraud and bribery scandal of all- "the "Friends of Angelo" was soon discovered. Congressmen like Chris Dodd and Kent Conrad were getting free money from Mozilo. Mozilo went to civil court, BAC paid his fines and that was it.

How that piece of garbage Mozilo is not behind bars defies belief. That was the moment I knew I was living in a corporate kleptocracy. All of these bags of shit getting away- like Corzine- don't surprise me anymore. We are living in a banana republic with no rule of law.    

Tommy Gunner's picture

" Known as "Kuddles" to friends"


"In 1987 Kudlow was rehired by Bear Stearns as its chief economist and senior managing director. He was fired in 1994 after abuse of cocaine caused him to skip an important client presentation"



Yen Cross's picture

First it was 1424, then 1400 barely hanging on, next 1380 area. 

   The Wall Street "Bath House, is going to be full of wet "snapping towels" soon enough! ( Effen Butt Pirates)

  When this shit washes out , there will be a statue of Frankenstein in front of the exchange!

TideFighter's picture

Wouldn't it be fun to make all the Banksters, Fedsters, Bilderbergs, Trilateralists, and Zsarists put on a set of pads and line up against the best of the NFL? 60 miutes of commercial-free, non-stop brutalizing with no waiting team doctors or ambulances! All of our problems solved and we get the bonus of free entertainment? I'm thinking BHO could play Tebow behind Carney, the snapper, Barney Frank as a receiver, Harry Reid on a disguised flair-out, etc.

We need a "fantasy team" here at ZH. Somehow, Erin Burnett would be at the bottom of the pile.    

AC_Doctor's picture

WTF?  http://www.marketwatch.com/story/major-banks-governmental-officials-and-their-comrade-capitalists-targets-of-spire-law-group-llps-racketeering-and-money-laundering-lawsuit-seeking-return-of-43-trillion-to-the-united-states-treasury-2012-10-25

NEW YORK, Oct. 25, 2012 /PRNewswire via COMTEX/ — Spire Law Group, LLP’s national home owners’ lawsuit, pending in the venue where the “Banksters” control their $43 trillion racketeering scheme (New York) – known as the largest money laundering and racketeering lawsuit in United States History and identifying $43 trillion ($43,000,000,000,000.00) of laundered money by the “Banksters” and their U.S. racketeering partners and joint venturers – now pinpoints the identities of the key racketeering partners of the “Banksters” located in the highest offices of government and acting for their own self-interests.

In connection with the federal lawsuit now impending in the United States District Court in Brooklyn, New York (Case No. 12-cv-04269-JBW-RML) – involving, among other things, a request that the District Court enjoin all mortgage foreclosures by the Banksters nationwide, unless and until the entire $43 trillion is repaid to a court-appointed receiver – Plaintiffs now establish the location of the $43 trillion ($43,000,000,000,000.00) of laundered money in a racketeering enterprise participated in by the following individuals (without limitation):  click link for more...

john39's picture

saw this earlier... something off about the web pages carrying the story.  looks like a hoax, but i could be wrong.

blunderdog's picture

It's just that damn Dragon family again...in one of the sealed-off subway tunnels under Wall St, Akira Yoshimitsu Dragon sleeps on a massive pile of gold.

MedicalQuack's picture

All the numbers predictions are not accurate.  Charlie Siefe, a journalist/mathematician does a really good video all about this.  He also wrote the book Proofiness, the Dark Arts of Mathematical Deception...a good book to read.  It's all about context.  He takes on quite a bit here and a bit on healthcare too.  He says what I say about the public not liking math but shoot it's ruling everything so I guess need to learn to like it just a little?  People are Algo Duped when they see a formula, and he says that as they look good but could be completely bogus.  He takes on the media with publishing some of these bogus stats and analytics we see as well, very well done and a good Q and A afterwards. 


I also added his video and one from Kevin Slavin on the Alchemists of Wall Street post, the Quants talk so you see both videos there as well.  The video from Kevin Slavin features some nice charts and information about Nanex and their work as well. 


Predictive algorithms are somewhat going in the toilet today as all it takes is some action by another algorithm not anticipated and there's goes the report:) 

exartizo's picture

Asset valuations today are so horribly distorted Worldwide across every asset class... equities, bonds, real estate, commodities, and even precious metals because of continuous Worldwide Central Bank Perversions and Currency Debauchery resulting in the Complete Inability of virtually any markets to reach honest price clearing levels.

History will look back at this time with disgust.

Hey, I'm pretty disgusted now.

tony bonn's picture

these companies are sitting collectively on 1.4 trillions in cash - what's the worry? what does that work out per employer/contractor?

Dburn's picture


Don't forget to look on the liability side when you see all that Cash. Corporate bonds have never been this cheap to issue. It's almost like a equity capital without stock dilution. Further, the 1.4 or 1.6 trillion plus hundreds of billions hidden overseas and from the prying eyes of shareholders, is not a "no worry sign".  It's represents multiple signs that some CFOs are worried about their ability to issue paper at reasonable rates should we double dip, there is nothing worthwhile for the company to invest its cash in including buying other companies ( stock price too high?) or expanding capabilities and products of their own companies to make their company more appealing to customers and to crush competitors.

 That kind of cash is wholly a defensive maneuver. They aren't earning much money on it. That's why no one should be assured that everything is A-Ok when they see those kind of cash balances. Finally, if the cash didn't come from debt and the companies sales growth is tepid along with margin compression, one has to ask where it came from. For most,  It's off the back of their employees from outsourcing, pforced productivity gains, stagnant wages and a general fear in wage earners to challenge the status quo which is “ learn to love the fact you have any job, because we really don’t need you”

 For the lower level wage earners s it’s even worse:  More and more large companies are getting caught at wage theft. Darden Restaurants proudly tells analysts it forces it's servers in its many restaurants to give back a portion of their tip money to the company. Wal-Mart along with a bevy of others are fighting small brush fires all over the country consisting of law suits where the millions of employees are having dollars and pennies shaved off their checks systematically.

Looked at through the prism of Corporate dominance over domestic and economic policy: The Cash then starts to represent what could have been in the economy as an organic stimulus. Instead it's being stolen and horded which is hell of a lot worse than savers hoarding their cash.

No Capex, No decent wages, except for the C-Suites, and the upper strata of talented professionals, Federal workers, and Academia  who are all uneasy about spending, banks are lending at a syphilitic rate as if each loan is cuts like a razor blade as it dribbles out, all points to govt spending and Fed Printing as the only means of keeping the economy treading at nose level. If only half the people are suffering like hell, then they can easily be shouted down by the other half that aren’t and be referred to as deadbeats and losers. This economy doesn’t feel like any economy in the past. People may not know the mechanics of what the Fed is doing, but everyone knows someone who has been on the side that has had the sharp edges plunged into them. That makes everyone uneasy. 



orangegeek's picture

NASDAQ daily is showing weakness.




Downside momentum is likely to accelerate next week.

Diggintunnels's picture

How does Amazon miss, lose money on an astounding amount of revenue and the stock rises 6.87%, giving a P/E is 3184.  It is truely bizarroworld. I guess the lesson is, Don't fight the FED...  

War is Peace , Ignorance is Strength , Freedom is Slavery...  please repeat...

Yen Cross's picture

Dreaming of ES 1380. nite/nite

Tommy Gunner's picture

In 1987 Kudlow was rehired by Bear Stearns as its chief economist and senior managing director. He was fired in 1994 after abuse of cocaine caused him to skip an important client presentation



boh knows's picture

My marijuana securties will piggy back the election cycle. No bubble yet bitchez entry points still  moy bueno

ShankyS's picture

I beat on this every qtr and INTC is most famous for it. Lower estimates into QE that lifts all ships so price never gets punished, and then get the layup beat at the end. rinse/repeat. No one cares how we get there, just so the beat at the end is made, no matter how low the hurdle. And of course CNBS is right ther with the appropriate headlines. 

ShankyS's picture

I beat on this every qtr and INTC is most famous for it. Lower estimates into QE that lifts all ships so price never gets punished, and then get the layup beat at the end. rinse/repeat. No one cares how we get there, just so the beat at the end is made, no matter how low the hurdle. And of course CNBS is right ther with the appropriate headlines.