Earnings Reports Not as Rosy as Hoped

EBay Inc. reported a profit of 205.4 million for the last quarter but fell a penny shy of analyst estimates. This marks the first time EBay did not meet or beat expectations. The ensuing sell off was of biblical proportions. After closing at $103 per share on Thursday, the earnings news was released and the stock tumbled to its current $85, down nearly 18%. Over $10 billion was shed off EBay’s market cap in one fail swoop. The company said that 2005 results may be lower than analyst estimations causing a slew of downgrades.

Shares of Ford Motor Co. fell after investors realized the fourth quarter profit reported by the company was due mainly to their financial services division. The auto making division is not faring nearly as well and is in the red. The company said 2005 earnings will likely come in at the lower end of analyst expectations, perhaps not even meet the low end. Investors jumped ship on this stock as well.

Continental Airlines reported a fourth quarter loss of $206 million. The company cited high fuel prices and heavy competition for the wide loss. Delta reported a $2.2 billion fourth quarter loss. This huge loss accounts for the worst annual financial performance in the history of the airline industry. Total 2004 losses for Delta now stand at a staggering $5.2 billion.

This ugly pattern of companies not meeting expectations means one of two things: Either analysts are overly optimistic, or Americans are just not buying goods at a pace to keep up with the Jones’. The latter is more likely. As the season continues on, stocks are likely to remain in shock mode and continue a slow bleed until some fantastic news hits the wires.

Luke Hodgens is the editor of
Powerhouse Profits a conservative investment newsletter. Click here to read more of his cogent analysis."