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Wall Street Covers Itself For Another Earnings Season

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    July 14, 2013

    The 2nd quarter earnings reporting season has begun. Earnings overall are expected to have continued to deteriorate.

    But not to worry. As always, Wall Street has lowered its earnings estimates just a tad more than guidance from corporations would have indicated, once again making sure it will be reported that “X’s earnings beat Wall Street’s estimates”.

    For several weeks Wall Street has also been dampening investor expectations considerably with talk of just how depressed earnings might be, raising the odds of enhancing the excitement when those earnings do beat the estimates.

    Alcoa, the first Dow component to report, kicked off the season, reporting after the close yesterday.

    It reported a loss of $119 million, compared to a loss of $2 million in the 2nd quarter a year ago.

    But don’t look on that as a terrible report. Alcoa said that it had a lot of one-time ‘restructuring’ expenses, apparently over $120 million of them, and if those costs are excluded, its earnings would have been 7 cents a share, better than Wall Street’s estimate of 6 cents.

    The stock was up 1.8% in after-hours trading in reaction to the wonderful report, and management’s rosy outlook for the future.

    Of course every year Alcoa seems to have problems with its earnings because of ‘one-time’ charges, but excluding those charges, beats the street’s forecasts.

    And almost every time, that and management’s rosy forecasts that its problems are probably over and better times lie ahead, results in a rally.

    But so far over the quarters and years, those who jumped in on the reports have wound up licking their wounds.


    There have been a few comments this morning that Alcoa’s earnings were subject to a bit of ‘”financial engineering”, apparently meaning choosing just the right amount of expenses to mark off as one-time restructuring costs to come out beating Wall Street’s estimates by a penny if those ‘one-time’ charges are excluded. “Financial engineering” sound so much more acceptable than financial manipulation.

    It’s interesting that Wall Street is now finally saying that Alcoa is no longer the bellwether for the rest of the earnings season that it used to be.

    The new bellwether? The major banks.

    Of course. The major banks will now be touted as the bellwethers, since what chance is there that they won’t continue to report impressive earnings – no matter how they have to ‘engineer’ those earnings by adjusting book-keeping figures, like the amount they set aside for underperforming loans, etc.

    And so it goes.

    To read my weekend newspaper column click here:  The Good Jobs Report Does Not Offset the Many Negatives!

    Subscribers to Street Smart Report: In addition to the charts, signals and recommendations in this morning’s blog, the new issue of the newsletter will be out tomorrow in your secure area of the Street Smart Report website tomorrow.

    Images: Flickr (licence attribution)

    About The Author


    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

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