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Beating Earnings

Please!

Like every guy in the business I follow the business news, and most of the time they get it wrong, still there is rarely any mea culpa. The latest is the "beat" estimates on earnings: Where 58% of the S&P 500 companies beat their Q3/09 earnings estimates. Don't kid yourself that's a load of manure!

A parable may be a useful tool here: Let say that you have a daughter, and as a new years resolution she tells you that last year she got an average of B-. This year she will aim to get a B average (just work with me here). Come June your daughter tells you that the year is difficult that she's didn't do all her homework and that the teachers are more demanding, so she will not get an B, but she will get C- or even a D. She works real hard, and at the end of the September she tells you that she now things she is going to get a D+. At the end of the year her grades arrive and she's got a C-. Granted C- is better than a D+, but its not a B-, and definitely note the B she said she was going to get. I don't want to carry the analogy too far, cus it just gets stupid

In the case of the S&P 500 companies, at the end of the summer (or about 2/3 of the way through their third quarter) they told the market (e.g. the analysts of the previous commentary) they though they were going to get a D+, and they ended up with a C-. Is that good, is that a beat; yes and no, its better than a D, but its not a B or even a B- which is what they thought they would get at the beginning of the year. Moreover, they told the market almost at the end of the quarter that they would achive a D and then a few weeks later they get a C- and everybody gets excited.

Go figure

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