It wasn’t difficult to find a falling stock on Tuesday, with the broad market deep in the red thanks to a few too many disappointing earnings announcements and a weak durable orders report for December. All told, the S&P 500 ended the session at 2029.55, down 1.34%.
The worst of the worst offenders were Microsoft Corporation (NASDAQ:MSFT), Procter & Gamble Co. (NYSE:PG) and Caterpillar Inc. (NYSE:CAT), each of which was a victim of its own earnings reports. The details are worth a closer look from investors.
Microsoft (MSFT)
Investors who had high hopes for a strong second fiscal quarter from Microsoft were let down today. Earnings rolled in at 71 cents per share of MSFT stock, in line with estimates, but shy of the 78 cents per share the company earned in the same quarter a year earlier. Revenue actually increased by 8%, reaching $26.47 billion. Analysts were expecting a top line of $26.3 billion.
But in a world where strong earnings “beats” are expected, simply meeting expectations was largely viewed as a failure … especially given the waning revenue growth from its Windows operating system and Office 365.
The downgrades began to materialize shortly thereafter. Nomura’s analysts’ opinion sums up the overarching theme of all the downgrades:
“After a lengthy 16-month period of multiple expansion for Microsoft’s stock, we see a tougher transition ahead, and move to the sidelines with a Neutral rating on the stock, down from Buy. Q2 (Dec) results were a bit ahead of expectations in revenues and earnings and Cloud revenues continued to show robust growth, but underlying trends in Windows and Office suggest a more challenging transition ahead.”
MSFT stock was down more than 9% on the news and downgrades, joined by technology peers Intel Corporation (NASDAQ:INTC) and Hewlett-Packard Company (NYSE:HPQ). Both were off by roughly 4% on Tuesday.
Caterpillar (CAT)
The implosion of commodity prices is finally starting to take a noticeable toll on the companies that make the equipment needed to extract those materials. Case in point: Caterpillar. Caterpillar posted alarming fourth-quarter results this morning, earning $1.35 per share on $14.24 billion in revenue, versus estimates for a profit of $1.55 per share on $14.18 billion in sales. The company had earned $1.54 per share in the final quarter of 2013.
The bigger reason CAT stock tanked to the tune of 7%, though, was the 2015 outlook. Caterpillar warned shareholders that revenue for the current year was likely to total $50 billion, which is about 9% less than last year’s top line. Expectations for sustained weakness in oil prices was named as the culprit for the dialed-down outlook.
Procter & Gamble (PG)
Last but not least, had it not been for currency volatility, Procter & Gamble may have seen acceptable results in its prior quarter.
The specifics: The company generated income of $1.06 per share of PG stock in its fiscal second quarter, well off the year-ago bottom line of $1.15. But, had it not been for what CEO A.G. Lafley described as “unprecedented currency devaluations,” Procter & Gamble would have earned $1.22 per share. The company also warned that an abnormally strong U.S. dollar would lead to similarly disappointing results for 2015.
PG stock ended the day down more than 3%.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
