A Flood Of Profit Warnings Just Crushed The "Earnings Recovery"

Tyler Durden's picture

After what is set to be six consecutive quarters of annual earnings declines - consensus now sees Q3 EPS dropping -2.1% according to Facset when as recently as the end of March, analysts were expecting EPS growth of 3.2% for the quarter - Wall Street has decided that it will take no more of this negativism, and expects S&P500 earnings to soar in the half, as shown in the following Deutsche Bank chart.

There is just one problem: contrary to the cheerful narrative of an earnings recovery, companies have been slashing H2 earnings, and as MarketWatch reports, at least 10 companies this week alone have lowered outlooks for the second half of the year.

Indeed, as we have been warning for months, and as Jeff Gundlach cautioned on his presentation last night...

... the EPS "hockeystick" has been once again indefinitely postponed; in fact what happens next will be a steep drop in forward EPS.

MW admits as much, saying that "Investors expecting the earnings picture to improve significantly in the year’s second half may want to keep an eye on a wave of sales and profit warnings from some large- and small-cap companies this week." Some examples: Ford Motor, Barnes & Noble, Tractor Supply, SuperValu, Sprout’s Farmers Market,  Pier 1 Imports, General Mills, HD Supply Holdings, EnQuest and Dave & Buster’s are among the companies tempering expectations for their second half.

So far, the flood of negative earnings warnings has not moved the needle on expectations for the third quarter, according to FactSet. But it wil: 78 of the 113 S&P 500 companies that have provided an outlook for the quarter have issued negative earnings-per-share guidance, according to FactSet senior analyst John Butters.

This number is set to surge for one simple reason: regular readers are quite familiar with what the latest "scapegoat" is - it is shown in the photo below.

As we said on August 31, when we first reported about Hanjin's bankruptcy, we said that "the global implications from the bankruptcy are unknown: if, as expected, the company's ships remain "frozen" and inaccessible for weeks if not months, the impact on global supply chains will be devastating, potentially resulting in a cascading waterfall effect, whose impact on global economies could be severe as a result of the worldwide logistics chaos. The good news is that both economists and corporations around the globe, both those impacted and others, will now have yet another excuse on which to blame the "unexpected" slowdown in both profits and economic growth in the third quarter."

Lo and behold, this is precisely what is about to take place, cue MarketWatch this morning:

The negative outlooks provided this week reflect a range of issues facing companies, some of which have emerged only recently.


For retailers, the bankruptcy of South Korea’s biggest shipping line and the world’s seventh biggest as measured by capacity, Hanjin Shipping, is a big risk, as it has left cargo valued at $14 billion stranded at sea, as the Wall Street Journal reported Wednesday. That’s because ships carrying its containers have been denied access to ports, or even been seized by some of the company’s creditors.


Coming right before the holiday season, that is likely to hurt a range of companies. Fashion-driven specialty retailers and clothing retailers making significant fashion shifts are most at risk from the Hanjin-related havoc, according to Cowen & Co. analysts. They name names, including Ascena Retail Group, Abercrombie & Fitch, American Eagle, Urban Outfitters, Gap, Michael Kors and Coach.

Further confirming our prediction, Cowen said that “an ability to chase into working trends could be limited if there are problems in the supply chain.” Others compared the issue to the strike by dock workers on the U.S.’s West Coast that began in the fall of 2014 and delayed shipments of goods for months. Deutsche Bank said companies that were especially hard hit by the port strike included sports retailers; home-furnishings companies such as Home Depot Inc., Lowe's Corp. and Bed Bath and Beyond and the crafts chain Michaels.

Of course, there is a far more critical issue: the demand is just not there. soft consumer spending has continued to "stump" analysts, although there is no secret: rising rents and health-care costs, have been the biggest catalyst crushing the US consumer, as we first explained in 2014, and as dollar store discounters confirmed two weeks ago, as we reported in ""Things Are Worse" - Dollar Stores' Startling Admission: Half Of US Consumers Are In Dire Straits."

Finally, with the oil rebound fading fast again, the EPS tailwind from energy companies may prove to be the final mirage in the much anticipated earnings rebound, as annual earnings are at best flat, and far from the dramativ contributor to the S&P bottom line. In fact, the biggest question remains whether or not Apple, whose earnings are 7% of the S&P's bottom line, can finally get out of its rut. Considering the company just said it would no longer report new product launch weekend sales - for obvious reasons - we can safely conclude that the latest forecast hockey-stick is not going to materialize, and if anything we may see the 6 quarter stretch of negative earnings continue into Q4 - an unprecedented 7 consecutive quarters of annual earnings declines.

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The Duke of New York A No.1's picture

You mean I won't be able to get my "made in China" junk from Walmart in time for Christmas? ... Black Friday to be renamed Red Friday.

Serfs Up's picture

No, you won't, but later on after the ships finally unload, you will get a great deal on a variety of boutique 'salt-water infused' products with a delightful aroma-o-the-sea wafting about them.

froze25's picture

Breaking now: Democratic presidential nominee Hillary Clinton delivered a keynote speech at the National Baptist Convention Thursday night, but photos show that many people failed to show up.

Plenty of photos, totally humiliating. Room was packed before Hillary, then emptied right before she was going to speak. lol awesome! Trump 2016


espirit's picture


Broke people not buying shit they don't need.

Manthong's picture

It’s all Putin’s doing… he is out to get us.

Cadmium plated kiddie jewelry, poison wallboard and cat food… everything at the Dollar store…. When will it end?

It’s a plot I tell you.. him and the Chicoms…

bonin006's picture

As I understand it, they didn't mess around with cadmium plating, it was solid cadmium.

kliguy38's picture

Maybe she started coughing and sharted herself......that could clear a room fast

Zero-Hegemon's picture

Sharted? She wears an app for that.

Kefeer's picture

The National Baptist has nothing to do with the Southern Baptist Convention and no Christian could vote for Hillary or Trump for that matter if biblical standards are applied.

KickIce's picture

Ha, looks like they held the choir at gunpoint.

J Jason Djfmam's picture

This weekend, I overheard the employees at the local Walmart

discussing the fact that they have not recieved this years Christmas shipment.

In previous years it would have already been there by this time.

bluskyes's picture

Seems a little soon, considering the huge DC's they have.

Did they put the halloween decorations out on july 5?

J Jason Djfmam's picture

I'm sure it is a conspiracy theory.

bluskyes's picture

i dunno, they both sound racist to me.

NoDebt's picture

How did we ever get by before scapegoat technology was invented?

BTW- there are multiple members of this board who have written it as "escape goat".  While I just shake my head and laugh to myself about that, you should know when you write it like that you couldn't look any more ridiculous if you were wearing giant red clown shoes.  Please stop, you're embarassing yourself.

E.F. Mutton's picture

Yes.  And no more "Loosers" either.  That makes my skin crawl.

SomethingSomethingDarkSide's picture

I saw about 20 "loosers" yesterday and that, more than the markets, depressed me.  Oh, society..

Where's me jumper's picture

Wow, I see these things as a sign of a free thinker, not indoctrinated. Each to their own, I guess

Spungo's picture

I think we should make escape goat the new term. The dummies have already stolen literally, so why not add goats of escape?

gregga777's picture

Reported profits are meaningless. Earnings and revenues reported by US criminal crony capitalist conporations are dominated by the pornography addled United States Swindlers Excuse Commissars-approved non–GAAP fantasies. Reported revenues and earnings are all meaningless.

The Con Street swindlers have the Feral government's complete approval to steal every sucker's, I mean, every American investor's life savings. That's because the Democratic–Republican Party political parasites get big bribes from Con Street as kickbacks.

Winston Churchill's picture

You're correct.There absolutely no way to value anything anymore.

We know the price of everything and the value of nothing.

Anybody still in this market is a sure L00SER.


Kefeer's picture

The market can only go upward until the paradigm "reset" occurs and that won't happen until after November 8 and likely until after January 20.

Winston Churchill's picture

If history is our guide, such resets always involve copious quantities of bloodshed.

Human nature never changes.

PaperTaperFakerCaper's picture

Winston C.  wouldn't spell it that way.  The word is "loser", loozer. 

lakecity55's picture

Comrades, profits and earnings are outdated metrics of the new soviet world sconomy!

And, don't buy useless relics like gold or silver!

Kefeer's picture

Is Scott 1000 the new money?

kliguy38's picture

Nonsense......this is a RECOVERY and don't forget it.....oh....and don't buy gold.

espirit's picture

Actually, it's going to be entertaining in the short term.

Like watching those in the 'Survivor Series' try to start a fire with two sticks.

buzzsaw99's picture

and as Jeff Gundlach cautioned... :VOMITS:

Consuelo's picture



Sing it with me ---


$4-Trillion BABY -- BRING IT...!!!@

espirit's picture

That 4 Tril is gonna have to be reserved for underwater .gov and public pensions.

Can't have them walking off the job, dontchaknow?

ejmoosa's picture

Yes even Valueline suggests a 10% jump in total dollar earning for the Dow 30 in 2017.

I see nothing on the horizon to light that fire.

Robert Trip's picture

The looting community are going to have slim pickings for the next few months.

All of the good stuff like big screen TV's and Air Jordan's are on those ships.

jughead's picture

no worries, what's in your house?

Robert Trip's picture

A Remington sawed-off 12 gauge.

espirit's picture

A 400 lb. RCA Crt. Come get it.

lakecity55's picture

The natives can get in their canoes and raid the ships!