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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jonjon831983's picture

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

fonzannoon's picture

when it becomes repetitive you have to junker

fonzannoon's picture

yeah i am one of the green arrows. weird day

jonjon831983's picture

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

trebuchet's picture

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



jeff montanye's picture

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




SilverDOG's picture

Buy Buy BUY! 


Silver, Bitchez.

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!


TrainWreck1's picture

you betcha.

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



New_Meat's picture

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

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. 

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.

stocktivity's picture

How do you vote yourself bigger pay raises?

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

fonzannoon's picture

How is this post (adr) getting creamed?

I am lost today.

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.

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.

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.  

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}

Frastric's picture

Until the people take it back from them...

resurger's picture

you are spot on on this one

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?

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.

mac768's picture

there are always two sides of the coin:

a) the bad one

b) the really bad one

you choose...

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?

Hype Alert's picture

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

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.

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........

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

sessinpo's picture

It may also suggests that margins are being squeezed.

hedgeisforpussies's picture

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

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.

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

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? 

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.

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)

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.

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.

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!!!!

resurger's picture

Verbal QE should suffice.

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?

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...

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?

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