Some Big Company Earnings Look Good, but Market Set for a Correction

Some Big Company Earnings Look GoodFirst-quarter earnings season is here, and the takeaway so far is business is better at home. The stock market has modest momentum, but earnings are mixed.

There certainly is weakness internationally, as FedEx Corporation’s (NYSE/FDX) earnings showed. International airfreight hurt the company’s bottom line. Caterpillar Inc. (NYSE/CAT) reported a big drop in its Asia-Pacific sales.

Williams-Sonoma, Inc. (NYSE/WSM) blasted higher on the stock market after beating on earnings and revenues. The company boosted its quarterly cash dividend by 41%, and it’s planning a new $750-million share buyback. Clearly, business isn’t bad for this retailer.

Adobe Systems Incorporated (NASDAQ/ADBE) also gained on the stock market after beating its own forecast and Wall Street’s earnings consensus. The company is transitioning to a subscription-based business model, and it was widely expected that revenues would be a bit lower this quarter. They actually fell four percent to just over $1.0 billion. But management backed its full-year outlook, and the company beat consensus for the second quarter in a row.


General Mills, Inc. (NYSE/GIS) broke out on the stock market significantly in early February. The company’s fiscal third quarter beat on revenues and earnings. Although rising raw material costs could hurt the company’s margins going forward, General Mills’ management forecast high single-digit earnings-per-share growth in its next fiscal year. Very solid for such a mature business.

Oracle Corporation (NASDAQ/ORCL) was the stock market disappointment this week. It’s an important benchmark for enterprise information technology (IT) spending and a long-term play that I like. The company missed on earnings per share by a penny, and constant currency revenues were flat. (See “So Many Technology Stocks, but Just One to Own for the Next Five Years.”)

The stock market is badly due for a correction. But it’s unlikely to experience a full-blown correction during an earnings season unless the numbers are really bad.

Because the stock market has appreciated so much since the beginning of the year, stocks should sell off on good news.

The choppy recovery in the U.S. economy can already be seen in earnings numbers. Even with improved investor sentiment, not all industries and corporations can deliver real economic growth.

There’s going to be a lot of bouncing around over the next month or so. I suspect that old economy, more industrial-type companies will continue their modest, but positive, revenues and earnings trend from the last several quarters.

The stock market’s been going up, but investors have been buying the safer plays. And the safer plays, consumer staples for example, could be the big theme this earnings season. Regardless, it’s going to be choppy going forward, even with the Federal Reserve on side.

Oracle’s flat revenue growth and one-penny earnings-miss was a disappointment in that the company reported decent business conditions the last two quarters. International Business Machines Corporation (NYSE/IBM) will be the next benchmark technology stock to report (April 18).