Biggest EPS Miss Since Lehman, And This Time It's Not The Tsunami's Fault

Tyler Durden's picture


Yes, we know it doesn't matter because Ben & Mario have got our backs at whatever multiple is required to levitate the economy market, but as Citi's credit desk points out; despite the constant chatter about EPS beats (despite top-line misses), the trick is that analysts have been dragging down expectations since the earnings-cycle began and so judging 'misses' must be done against a 'frozen' pre-earnings number. If we do this 'fair' approach to considering expectations, the percentage miss in the S&P 500's EPS for Q2 2012 is as bad as the Q2/Q3 2011 Tsunami-driven miss - and the worst we have seen since Lehman Brothers shuffled off this mortal coil. So as usual, be careful what truth you believe and consider just how much more 'hope' is now in this market given this reality.



Citi Credit Weekly

Undoubtedly, part of the reason that Spain and Greece have come back into focus is that the earnings of US companies continue to be so uneven. With more than half of S&P500 companies having reported, we’re only now starting to get the full picture, and viewed from the top down perspective it’s far less pretty than even last week led us to believe. Relative to expectations, top line revenues have been especially weak, with nearly all sectors surprising to the downside, even as EPS and EBITDA have tended to beat.


But even those sorts of statistics tend to hide the true weakness because equity analysts tend to revise expectations down while earnings season is still ongoing, which explains why some 72% of S&P500 companies manage to beat expectations in a weak quarter.


To get a truer picture of the magnitude of disappointment, it’s necessary to freeze estimates prior to the start of earnings season, so that those companies reporting later don’t get the benefit of having the bar set lower by the early reporters. And viewed this way, we see that earnings surprises have been about as bad as the third quarter of 2011, which were impacted by the Japanese earthquake and the debt ceiling debate.

Source: Citi

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Sun, 07/29/2012 - 16:17 | 2660708 jonjon831983
jonjon831983's picture

"When it becomes serious, you have to lie." - JUNKER

Sun, 07/29/2012 - 16:22 | 2660726 FieldingMellish
FieldingMellish's picture

.... and print.

Sun, 07/29/2012 - 16:25 | 2660733 fonzannoon
fonzannoon's picture

when it becomes repetitive you have to junker

Sun, 07/29/2012 - 17:16 | 2660840 New_Meat
New_Meat's picture

but you didn't ;-)

Sun, 07/29/2012 - 17:18 | 2660847 fonzannoon
fonzannoon's picture

yeah i am one of the green arrows. weird day

Sun, 07/29/2012 - 21:23 | 2661237 jonjon831983
jonjon831983's picture

and after junking the repetitive in hopes of someone finally believing the lie, you need to do it like JUNKER.

Sun, 07/29/2012 - 17:38 | 2660871 trebuchet
trebuchet's picture

article should "Lehman Brothers shuffled off its mortal coil" not "this mortal coil... couldnt resist



Sun, 07/29/2012 - 22:41 | 2661375 jeff montanye
jeff montanye's picture

thanks for clearing that up.  old bill shakespeare's such a hack.




Sun, 07/29/2012 - 16:21 | 2660722 SilverDOG
SilverDOG's picture

Buy Buy BUY! 


Silver, Bitchez.

Sun, 07/29/2012 - 17:36 | 2660868 Muppet of the U...
Muppet of the Universe's picture

MUST.. establish...  FAIR MARKET

Sun, 07/29/2012 - 16:22 | 2660724 Tinky
Tinky's picture

Look! Over there! Iran...


a) is closer to building a nuclear weapon!

b) is responsible for that terrorist attack!

c) is meddling in Syrian affairs!


Sun, 07/29/2012 - 16:37 | 2660756 TrainWreck1
TrainWreck1's picture

you betcha.

we can sort out this market thingamajig any time, but Iran & Syria have the WMD's!!!



Sun, 07/29/2012 - 17:17 | 2660844 New_Meat
New_Meat's picture

scams and humour have to have a kernel of truth, otherwise, no one will believe.

Sun, 07/29/2012 - 16:24 | 2660727 LetThemEatRand
LetThemEatRand's picture

This is what happens when large companies decide to increase profit (and executive bonuses) by squeezing workers.  Workers are the ones who buy their shit, except when they are being squeezed and cannot.  Keep funneling more money to the top, fellas.  Eventually you'll be the only ones left who can afford to buy what you sell. 

Sun, 07/29/2012 - 16:37 | 2660753 adr
adr's picture

This is also what happens when government workers vote themselves further pay raises, and allow state funded pension benefits to grow without there being money to pay for it.

Big government and big business are two sides of the same coin. Both require socialism/facism to exist.

IBM is not a capitalist corporation anymore, nor is almost any publicly traded company. In fact I really don't know what IBM does to make money anymore. Some cloud data bullshit is about all. See in their commercials. Without the government, IBM would probably cease to exist.

Sun, 07/29/2012 - 16:54 | 2660792 stocktivity
stocktivity's picture

How do you vote yourself bigger pay raises?

As long as they can keep printing, It's all Bullshit!

Sun, 07/29/2012 - 17:40 | 2660874 Hype Alert
Hype Alert's picture

Works for congress

Sun, 07/29/2012 - 17:42 | 2660875 Hype Alert
Hype Alert's picture

Oops, Double tap.

Sun, 07/29/2012 - 17:21 | 2660822 fonzannoon
fonzannoon's picture

How is this post (adr) getting creamed?

I am lost today.

Sun, 07/29/2012 - 22:12 | 2661337 Lednbrass
Lednbrass's picture

Well, its Sunday and the GW DKos/Media Matters types are out and about- its not like they were going to be at church or with their families.

Sun, 07/29/2012 - 17:31 | 2660864 FieldingMellish
FieldingMellish's picture

IBM does a lot of lucrative consulting work, both to private clients and government. They are actually a very well run business these days. They really don't build anything physical anymore as that was sold off to Lenovo and other Chinese firms years ago when they realized there was no profit in it.

Sun, 07/29/2012 - 23:23 | 2661439 Osmium
Osmium's picture

The Lenova was just the line of IBM Thinkpads they sold off.  They still manufacture and assemble the iSeries and P series in Rochester MN.  

Sun, 07/29/2012 - 17:36 | 2660869 New_Meat
New_Meat's picture


"This is also what happens when government workers vote themselves further pay raises, and allow state funded pension benefits to grow without there being money to pay for it...."

u b onto something here.  viz. Stockton, Harrisburg PA, etc.  viz. the entirety of ILLINOIS.

So a greenie on ya, and the pussy junkstaz are ... well ... pussies.

But after all, government unions are people too.  How much are they people?  Somptin like $4.5BB +/-, after I finish polishing the apple tree I might go find a source for that number that all y'all can bitch about.

Think about it: "government unions and other unions are people too!" 

Has sorta' nice ring to it.

- Ned

{must be what all of the caterwauling is all about, y'know, the "people" thingie}

Sun, 07/29/2012 - 16:43 | 2660770 Frastric
Frastric's picture

Until the people take it back from them...

Sun, 07/29/2012 - 16:53 | 2660786 HungrySeagull
HungrySeagull's picture

Or hire a Proxy.

Sun, 07/29/2012 - 17:01 | 2660809 resurger
resurger's picture

you are spot on on this one

Sun, 07/29/2012 - 19:11 | 2661030 sessinpo
sessinpo's picture

I'm curious as to what you would think of a salary cap tied, a percentage, tied to the lowest paid person in the company.


Just a curiosity question. And if you beleive in free markets, how would you justify any type of salary cap?

Sun, 07/29/2012 - 20:19 | 2661085 LetThemEatRand
LetThemEatRand's picture

I am not in favor of an arbitrary salary cap.  However, a free market would work better with real shareholder rights.  As it stands now, shareholders have few rights to challenge executive salaries unless they are huge institutional investors, and even then they have few rights.  There is no accountability in corporate America.  The Ivy League schools pump out the sons and daughters of the privileged classes who hire each other in executive positions.  They pay off politicians who pass laws to prevent any kind of accountability to anyone.  So change number 1 is to return some rights to shareholders to challenge insane executive salaries and throw out the bums who engage in cronyism.  Shareholders are investors.  The State should not protect management from investors as currently occurs.  Moreover, a rational taxation system for corporations and their CEO's would go a long way.  For example, if large corporations were required to pay a larger tax for income generated from offshoring jobs, keeping profits overseas, and squeezing workers, management would be more inclined to worry about making money the old fashioned way -- earning it.  Any trained monkey can offshore to China and see short-term gain.  The long-term consequences are a different story, but these guys line their pockets and sail off in the mega yachts.  In my world, it would be a voluntary tax. Want to do business in this country but build your shit in China, you pay a large tax.   After all, you get the benefit of our infrastructure, our middle class, etc., so you have to pay for access.   Want to do business in this country and build it here, you pay no tax if your profit is distributed back into R&D, corporate assets, and employees.

Mon, 07/30/2012 - 06:16 | 2661703 mac768
mac768's picture

there are always two sides of the coin:

a) the bad one

b) the really bad one

you choose...

Sun, 07/29/2012 - 16:24 | 2660729 Sudden Debt
Sudden Debt's picture

If you stick your head deep enough into the sand, you can see all the right reasons why we really... to the edge of the cliff...
why do we always before a crash rally?

Sun, 07/29/2012 - 17:38 | 2660872 Hype Alert
Hype Alert's picture

Hah, it's not sand they are parking their heads.  It's where the sun doesn't shine.

Sun, 07/29/2012 - 16:25 | 2660730 Poqit
Poqit's picture

If earnings are beating while revenue is missing expectations, this suggests a lot of fudge in the bottom line #s, yes?  So "true" earnings are probably lower than even revised expectations.

Sun, 07/29/2012 - 16:49 | 2660779 ihedgemyhedges
ihedgemyhedges's picture

Fudge?  Hell, Willie Wonka himself should be in charge of all reporting!!

GAAP is a joke, mark to market in financials is a joke and the most amazing thing is the number of times any one company can incur a "one time" restructuring charge and just report whatever earnings they would like.  I mean, come on, shouldn't the GAAP people just stand up and say "Restructuring charges are now a common component in running a US corporation in these times and will no longer be allowed to be backed out of normal earnings reported to the public in any manner (ESPECIALLY BY CNBC!!)."

On my last point though, at least they can not DIRECTLY hide the numerous "one time" restructuring charges from the balance sheet.  "Adjusted" earnings do not flow to equity, GAAP earnings do.  So at least the balance sheet aka debt/equity ratios catch the hit........

Sun, 07/29/2012 - 17:42 | 2660877 New_Meat
New_Meat's picture

Check out IBM doing "one-time" thingies and translating those into ongoing operations.  Quite clever, but then, I'm kinda' new to this stuff.

- Ned

Sun, 07/29/2012 - 19:20 | 2661046 sessinpo
sessinpo's picture

It may also suggests that margins are being squeezed.

Sun, 07/29/2012 - 16:24 | 2660731 hedgeisforpussies
hedgeisforpussies's picture

noone can handle the truth. who needs truth when u have BB and Pinocchio. 

Sun, 07/29/2012 - 16:35 | 2660749 Tirpitz
Tirpitz's picture

If I read the chart correct, we see a five percent miss. While two out of three companies managed to beat.

The charts look generally bullish, so better stick with the trend.

Sun, 07/29/2012 - 16:42 | 2660760 knukles
knukles's picture

Hold the Boat!

You're chart deals with Unrevised Expectations.
That's not fair.
The Equity Pukes I know always want to Revise their Estimates.

Sorta like Goldman's Quarterly Revised Forecast of the Prior Quarter's GDP after it's already been released.
Haven't you ever noticed that report?



Equity managers need be sent to the Uzbeck Reforecasting Seasonal Adjustment and Revisionist Redaction Facility #3

Sun, 07/29/2012 - 16:43 | 2660761 cosmictrainwreck
cosmictrainwreck's picture

Holy cow! The nerve of those guys at Citi actually telling the truth; how do they expect to get away with that? For myself, I thought everybody knew that all the analysts always dumb-down the "expectations" to keep up the BULLSHIT rosey scenario, but first time I've seen anything actually in print - aside form ZH, that is.

That notwithstanding, since when do "fundamentals" influence the amped-up share "prices" anyway? 

Sun, 07/29/2012 - 16:54 | 2660790 HungrySeagull
HungrySeagull's picture

The bullshit and the revised bullshit is to be expected after all...


Months after the fresh stink has dried in the litter box of stock tickers.

Sun, 07/29/2012 - 17:08 | 2660823 MillionDollarBoner_
MillionDollarBoner_'s picture

P'raps they were being "ironic"?

Sun, 07/29/2012 - 16:44 | 2660774 MillionDollarBoner_
MillionDollarBoner_'s picture

EPS beats are easy so long as you put the money which should have been invested in R&D, staff development and marketing into share buybacks :O)

Sun, 07/29/2012 - 16:46 | 2660776 caimen garou
caimen garou's picture

storyland with Buckskin Bill, I mean Ben, or is it Tim? or is it...wait a minute where was I going with this? oh yes,nothing but a BS pump in stocks while companies,in reality,are going down the toilet.

Sun, 07/29/2012 - 16:49 | 2660778 Hype Alert
Hype Alert's picture

With top line underperforming, the way to boost bottom line is labor cuts in direct labor, admin, marketing, etc.  Deal with it.  Printing $ will only increase material costs.  Eventually, bankrupt and insolvent companies must go bankrupt.

Sun, 07/29/2012 - 17:53 | 2660894 LooseLee
LooseLee's picture

Eventually, bankrupt and insolvent companies must go bankrupt.....


Only in a free market economy, The USSA no longer has a free market economy under elephant or ass leadership.

When the American people finally awake from their deep sleep (I hope I am able to fight due to my age at that time), it will be a free-for-all for anyone even remotely connected to crony capitalism/fascism/socialism et. al. They all need to be executed on public TV!!!!

Sun, 07/29/2012 - 16:57 | 2660798 resurger
resurger's picture

Verbal QE should suffice.

Sun, 07/29/2012 - 17:01 | 2660810 kilroy
kilroy's picture

Wait. I'm confused.

Wasn't this was the moment when the rise of the oceans began to slow, and our planet began to heal?

Sun, 07/29/2012 - 17:06 | 2660819 MillionDollarBoner_
MillionDollarBoner_'s picture

Yeah...then the angels sang, Venus rose majestically up out of the ocean...and it turned out to be Blankfein in a dress...

Sun, 07/29/2012 - 17:29 | 2660863 LooseLee
LooseLee's picture

I recommend and support PUBLIC EXECUTION on broadcast TV for any analyst that lowered his forecast after 6/15/2012. Anyone with me?

Sun, 07/29/2012 - 20:17 | 2661124 RobotTrader
RobotTrader's picture

Obviously earnings don't matter when Amazon rises from $40 to $240 on one cent earnings "ex-items" for 14 quarters in a row, now sporting a P/E ratio of 194


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