August 2, 2001

Earnings Fall Hard

Wall Street and the media have been raving about how many companies have managed to beat or match earnings estimates in the face of the economic slowdown. But that's no reason to jump for joy. These companies have managed to scrape by only because analysts slashed their earnings estimates.

For instance, in the second quarter? Intel beat average estimates by a penny, but their earnings plunged 75%. Applied Micro Devices (AMD) also passed estimates by a penny, but earnings at AMD fell a whopping 92%. Of those companies that matched estimates, EMC's profits fell 68%, GM's earnings dropped 57%, and Microsoft reported a 97% drop-off in earnings -- from $2.4 billion to $66 MILLION! That's definitely not a reason to celebrate.

Earnings have fallen 16% this quarter -- that's the steepest drop in a decade. It's no coincidence that the economy was emerging from a recession the last time we had an earnings drop this big. The US economy is near, if not in the middle of, a recession already. The outlook for US companies isn't getting any better for next quarter. Look for earnings to plunge once again!

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