Earnings season is underway, and the procession of companies reporting financial results for the prior three months unofficially began with a surprisingly decent report from industrial metals giant Alcoa (NYSE:AA). The company managed to beat expectations, but those expectations had already been lowered by about one half over the prior 90 days. What does this tell us about what to expect this earnings season?
By itself, we can’t read too much into the Alcoa situation, but what we can say is that there already have been a number of companies who’ve warned Wall Street that their prior quarter numbers would be substantively lower.
Aside from these warnings, there are also numerous companies that will likely come in with both top- and bottom-line numbers that are destined to disappoint. For some, it’s because their business is way out of favor, and for others it’s a general distaste for their brand, and even their management. Investors looking to make sure they don’t get caught in disappointing stocks need to make sure they are nowhere near these stocks well before they report. Here are five companies to avoid this earnings season.
1) Advanced Micro Devices
The tech sector has seen its shares of studs and duds over the past several months, but one company firmly in the dud camp is semiconductor chipmaker Advanced Micro Devices (NYSE:AMD). On Monday, the company said its revenue for the second quarter ended June 30 will decrease about 11% vs. the same quarter a year ago. It previously forecast a revenue increase of about 3%. AMD cited softer-than-expected channel sales in China and Europe, as well as a weaker consumer buying environment as reasons for the earnings warning.
For investors, consider this a warning to refrain from booting-up AMD shares.
Diesel engine maker Cummins (NYSE:CMI) is a stock viewed by professional traders as a canary in the coal mine when it comes to economic activity around the globe. On Tuesday, Cummins lowered its full-year revenue outlook, and now expects 2012 revenues to be merely in line with 2011.
The previous guidance was for a gain of 10%. Cummins cited weak global growth as the reason for the reduced guidance, and said that the soft demand from Brazil, China and India has not improved as it had expected. The Cummins announcement has fueled fears that more negative pre-announcements will be coming soon, and that’s bad for stocks in general.
3) J.C. Penney
Once the belle of the retail ball, J.C. Penney (NYSE:JCP) still is considered a leading mall-based retailer — but for how long? The company has had a terrible go of it over the past several years. Despite management changes and a new branding push, as well as the introduction of its “Fair and Square” pricing that has slashed prices by about 40%, shoppers aren’t embracing the retailer. Fiscal 2013 earnings are expected to come in well below last year’s anemic fiscal 2012, and already we’ve seen the company disappoint with first-quarter results that showed a larger-than-expected loss and a 20% decline in revenue. To make matters worse, ratings agency Standard & Poor’s just lowered its credit rating on the company to “B+” from “BB-”, which is the fourth notch into junk status.
4) Tyson Foods
The oppressive heat wave that slammed the Midwest did more than make Midwesterners uncomfortable. It resulted in significant damage to the corn crop, and the result has been a big surge in corn prices. The price spike has had a negative effect on poultry producers such as Tyson Foods (NYSE:TSN), which uses corn feed to grow chickens. The high cost of corn will put pressure on Tyson’s profit margins, and the rising cost of corn will also result in less money in consumers’ pockets.
The metrics in the space prompted BMO Capital, JPMorgan (NYSE:JPM) and S&P Capital IQ to cut their ratings on Tyson shares. Traders have responded in kind by pushing TSN shares down about 10% over the past month. It’s likely going to be a tough quarter for this chicken producer, so investors may want to change their dinner orders.
5) Reserch in Motion
If you still own a BlackBerry, you have my sympathies. I sympathize even more if you still own Research In Motion (NASDAQ:RIMM) shares.
By now, it’s no secret that the cell phone maker has fallen on serious hard times. That’s reflected in the company’s share price drop of nearly 53% so far in 2012.
And though I’ve seen some bottom-feeding investors looking to buy RIMM shares on a bounce in front of its next earnings report, I think you’d be better served by buying a Lotto ticket.
I say stay away from RIMM, as the next earnings report (due late September) is likely to leave shareholders black and blue.