The “hockey stick” is Zero Hedge’s term for the never ending game Wall Street analysts play of projecting a sharp rise in earnings—right around the corner next quarter—off of flat or declining earnings now. The hockey stick never seems to materialize, but that doesn’t stop the analysts. From Tyler Durden at zerohedge.com:
After what is set to be six consecutive quarters of annual earnings declines – consensus now sees Q3 EPS dropping -2.1% according to Facset when as recently as the end of March, analysts were expecting EPS growth of 3.2% for the quarter – Wall Street has decided that it will take no more of this negativism, and expects S&P500 earnings to soar in the half, as shown in the following Deutsche Bank chart.
There is just one problem: contrary to the cheerful narrative of an earnings recovery, companies have been slashing H2 earnings, and as MarketWatch reports, at least 10 companies this week alone have lowered outlooks for the second half of the year.
Indeed, as we have been warning for months, and as Jeff Gundlach cautioned on his presentation last night…
… the EPS “hockeystick” has been once again indefinitely postponed; in fact what happens next will be a steep drop in forward EPS.
MW admits as much, saying that “Investors expecting the earnings picture to improve significantly in the year’s second half may want to keep an eye on a wave of sales and profit warnings from some large- and small-cap companies this week.” Some examples: Ford Motor, Barnes & Noble, Tractor Supply, SuperValu, Sprout’s Farmers Market, Pier 1 Imports, General Mills, HD Supply Holdings, EnQuest and Dave & Buster’s are among the companies tempering expectations for their second half.
So far, the flood of negative earnings warnings has not moved the needle on expectations for the third quarter, according to FactSet. But it wil: 78 of the 113 S&P 500 companies that have provided an outlook for the quarter have issued negative earnings-per-share guidance, according to FactSet senior analyst John Butters.
This number is set to surge for one simple reason: regular readers are quite familiar with what the latest “scapegoat” is – it is shown in the photo below.
As we said on August 31, when we first reported about Hanjin’s bankruptcy, we said that “the global implications from the bankruptcy are unknown: if, as expected, the company’s ships remain “frozen” and inaccessible for weeks if not months, the impact on global supply chains will be devastating, potentially resulting in a cascading waterfall effect, whose impact on global economies could be severe as a result of the worldwide logistics chaos. The good news is that both economists and corporations around the globe, both those impacted and others, will now have yet another excuse on which to blame the “unexpected” slowdown in both profits and economic growth in the third quarter.”
Lo and behold, this is precisely what is about to take place, cue MarketWatch this morning:
The negative outlooks provided this week reflect a range of issues facing companies, some of which have emerged only recently.
For retailers, the bankruptcy of South Korea’s biggest shipping line and the world’s seventh biggest as measured by capacity, Hanjin Shipping, is a big risk, as it has left cargo valued at $14 billion stranded at sea, as the Wall Street Journal reported Wednesday. That’s because ships carrying its containers have been denied access to ports, or even been seized by some of the company’s creditors.
Coming right before the holiday season, that is likely to hurt a range of companies. Fashion-driven specialty retailers and clothing retailers making significant fashion shifts are most at risk from the Hanjin-related havoc, according to Cowen & Co. analysts. They name names, including Ascena Retail Group, Abercrombie & Fitch, American Eagle, Urban Outfitters, Gap, Michael Kors and Coach.
To continue reading: A Flood Of Profit Warnings Just Crushed The “Earnings Recovery”
