Friday, July 17, 2009

Earnings Report/Update

Just wanted to give a quick update of where we sit as earnings hit full force.

From the tech side of things, IBM reported some pretty solid results. They were down on revenues, but it was a manageable number. They beat on their profits, and raised their full year guidance from 9.20 to 9.70, which was important. They also improved their profit margins. I believe they are an example of a company "managing" its way through this recession, and doing it well. Not only are they performing well now, they are poised to be way ahead of the pack once we return to solid growth.

Google also reported last night. Again, solid numbers. But that's not was the street wants from Google; it wants big numbers. Its true their growth rate is slowing, but I think they deserve a little bit of a pass considering the economic climate. Interesting that they finally are jumping on the cost cutting bandwagon (cutting jobs), which takes a different stance than we're used to seeing from them.

The big banks are all going to report big numbers, and we knew this going in. They had massive revenues coming into their investment banking wings due to all the share issuances during Q2, not to mention trading (see Goldman). To me though, what is going to happen next quarter, and the one after that? We know that credit losses are continuing, and that banks still are sitting on a ton of this debt. Can their investment banking and trading operations make up for those losses? That will determine their fate.

We also had some bad results, and those come from companies tied mostly to the consumer. Marriott reported a tough quarter, with their results falling by almost all metrics. Nokia also wasn't too hot, and really got punished by the market yesterday. Although their market share in smart phones increased to 41%, the street chose to overlook that (which I must say surprised me a bit), and looked at their falling margins and poor forecast.

The question now is what is going to drive this market? Its going to take earnings surprises. After Goldman, the only way bank earnings were going to move the market is if they are bad or out of this world good. After Google and IBM, same thing for tech.

The market has proven the past couple of days that it still would like to go up if it can, but will the momentum dry up? Personally, I'm interested in earnings from the rest of the railroads (specifically NSC and BNI), and a few others (Diamond Offshore and Fuel Systems Solutions to name a couple).

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