Third-quarter earnings scorecard: Amazon blows socks off Wall Street, Whirlpool circles drain
UPDATED on Friday at 5:13 p.m.
On Sunday, I wrote about why quarterly corporate earnings -- currently coming out -- are so important. You can click here to read that story. (Note: Most companies are issuing third-quarter earnings but some, such as Apple, are issuing fiscal fourth-quarter earnings.)
Our friend Peter Boockvar, equity strategist at Miller Tabak, has been keeping a running scorecard of third-quarter earnings and counting up how many companies have beaten expectations on the top line -- revenue -- and on the bottom line -- profit.
In the second quarter, about 75 percent of companies beat profit expectations, while only 50 percent beat revenue expectations.
Of 156 companies that have thus far reported third-quarter earnings, Boockvar said that 85 percent have beaten expectations for profit, while 58 percent have beaten for revenue, so that's an improvement over the second quarter.
Let's take a look at Friday's key earnings reports:
-- Amazon reported after the bell on Thursday but today enjoyed the full fruits of the quarter. Amazon shares closed up an amazing 26 percent today following yesterday's blow-them-out-of-the-water earnings. Amazon's profit soared 68 percent in the third quarter, or 45 cents per share. Analysts were expecting 30 cents per share. Shares of Amazon hit their all-time high today.
Amazon also beat on the top line, reporting revenue of $5.45 billion, up 28 percent from the third quarter of last year, beating forecasts of $5.03 billion.
There's no other way to say this: Wow. Amazon and eBay were two big consumer retailers I talked about in last Sunday's story as being bellwethers of the recovery, as they are big consumer companies and consumer spending accounts for about 70 percent of U.S. GDP.
eBay disappointed; Amazon shimmered. This tells us consumers seem to be growing tired of the bid model for buying stuff, or that eBay's universe of users who enjoy shopping that way -- and selling things that way -- may finally be full.
Amazon did great precisely because the economy is still down. Books, CDs, DVDs and so forth are cheaper than washing machines, which moves us on to...
-- Whirlpool, which saw third-quarter profit drop 47 percent. Whirlpool is the world's largest manufacturer of big-ticket household items and the company's earnings tells us pretty clearly how healthy the economy is. It's this healthy: people aren't buying things that cost $800.
Whirlpool expects sales in North America, its largest market, to fall 10 percent this year.
The company raised profit guidance going forward, but don't be fooled by that: profits will be up because the company will slash prices on its products. That's not a recipe for long-term growth.
I posted the following on Thursday:
-- McDonald's continues to ride the recession like an pro surfer on a tsunami. Third-quarter profit was up 5.9 percent from the same period last year on strong overseas sales. Sales were up 6.9 percent in Europe and 5.3 percent in Asia-Pacific. U.S. sales were the laggard, up only 3.2 percent. McDonald's has prospered in the recession thanks to the trade-down effect, where consumers stop going to more expensive quick-serve restaurants, such as Chili's, and trade-down to Mickey D's.
-- This is one I was watching closely: Online retailer eBay disappointed with third-quarter earnings that fell 30 percent, widely missing expectations. eBay is an important consumer company but one that allows them to set their own price. It's understandable if earnings fall off at a high-end department store during a recession, but if they're falling at eBay, that's more troubling.
-- 3M's third-quarter earnings fell 3.4 percent but that beat estimates. The company raised its guidance for the rest of the year and the stock rose accordingly. 3M is a diverse manufacturer that makes everything from Post-It notes to power lines.
-- Here's an interesting one: AT&T's earnings dropped 1.2 percent, though they beat expectations. Why? Because mobile phones are replacing land lines. AT&T watched revenue from its land line business continue to rapidly drop, while its wireless division added a record number of iPhones.
I posted the following on Wednesday:
-- Boeing is in trouble. The manufacturing giant not only lost $1.6 billion in the third quarter, but the loss was worse than expected. The reason can just about be summed up in one word: "Dreamliner." This is the 787 jetliner, the ultra-high-tech, fuel-sipping commercial aircraft of the future. It has suffered so many delays, I'm starting to think it's cursed. The company also has had trouble moving forward with its 747 revamp.
The company does have its defense division to fall back on, which provided about half of company revenue, and that ticked up 3 percent in the quarter.
But if Boeing can't get the 787 ironed out -- or at least off the ground for its first test flight -- all the wars in the world won't help the company.
-- Morgan Stanley swung to its first profit in a year, thanks to its investment banking operations. Morgan Stanley is more like Goldman Sachs and less like Citigroup -- an investment bank, rather than a retail bank. However, unlike Goldman, Morgan Stanley has a lot of investments in commercial real estate, which hurt third-quarter earnings and will continue to drag on the company.
-- Wells Fargo beat expectations on both the top and bottom lines this morning, reporting a $2.6 billion third-quarter profit. Wells made money from its mortgage business -- the soon-to-expire first-time homebuyer credit goosed the new housing market -- and from fees, which totaled a staggering $11 billion.
Here's the thing, though: Like other retail banks (Citigroup, Bank of America), Wells is carrying heavy, *heavy* consumer loan losses. So heavy that the bank has yet to write off $24 billion worth of them. These are a weight around the necks of these banks that just will not disappear. And, with unemployment heading toward 10 percent, expect them to keep stacking up.
I posted the following on Tuesday:
-- Apple kicked things off after Monday's closing bell, blowing away expectations, thanks to soaring iPhone sales and strong laptop sales. Analysts expected Apple to report earnings of $1.3 billion for the quarter. Instead, the company reported $1.7 billion, a 47 percent climb over the same quarter last year. It was Apple's most-profitable quarter ever and pushed the company's stock to an all-time high.
So much for Apple producing discretionary products that will suffer during a recession, as some warned. Apple has proven itself to be a good technology and retail company.
Interestingly, sales of iPods dropped 8 percent in the quarter, suggesting saturation and the fact that smartphones, like the iPhone, can be used for music players, pointing toward device convergence.
The one down side to the boffo quarterly earnings: At nearly $200 per share, Apple's stock may be too expensive to buy, meaning it may not have much more short-term upside, some analysts are saying. But not all: UBS has upgraded Apple's price target to $280 per share. Wow.
-- Despite a 53 percent drop in quarterly earnings, Caterpillar still beat expectations and forecast a better-looking 2010.
The world's largest maker of bulldozers and other heavy equipment said global GDP will grow 3 percent next year and the GDP of developing nations -- those that are raring to rip up their earth and build stuff -- will grow 5 percent, all good news for Cat.
Cat's executives even predicted the recovery next year could be "rapid," saying the just-completed third quarter marks the company's low point for sales.
-- Here's one I was very interested in: Coca-Cola saw a slight quarterly rise in profits, thanks only to overseas sales, which were able to offset lagging North American sales.
Consumers in the U.S. have either been curtailing their Coke purchases, to save money, or switching to non-cola alternatives.
Coke chief executive Muhtar Kent ought to personally thank India, where sales leapt 37 percent compared with the third quarter of 2008. They were up 15 percent in China, and down 4 percent in North America.
According to Miller Tabak equity strategist Peter Boockvar, about 83 percent of companies reporting so far in the third quarter are beating profit, or bottom-line, expectations, but only 59 percent are beating top-line, or revenue, expectations.
This is a little better than the second quarter, when about 75 percent beat projections for earnings but only half did so for revenue.
Boockvar's most recent numbers indicate that many companies are still achieving profitability by cost-cutting, not by revenue growth, telling us that the tough times aren't over yet.
-- Frank Ahrens
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October 23, 2009; 5:13 PM ET
Categories: The Ticker | Tags: 3M, AT&T, Amazon, Apple, Boeing, Caterpillar, Coca-Cola, Coke, McDonald's, Miller Tabak, Morgan Stanley, Muhtar Kent, Peter Boockvar, Wells Fargo, Whirlpool, eBay
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