The smart folks over at Birinyi Associates did some interesting analysis the other day showing that over the past four years, the S&P 500 has gained a total of 9.7% during the periods when companies are reporting earnings (so-called earnings season, which most recently kicked off last Tuesday) and 53.4% cumulatively when no earnings were reported.
Of course my first question is to wonder how many days are in each sample, but it’s close enough to see that during the current bull market, stocks do better when all is quiet on the earnings front. Just why that should be the case isn’t exactly clear but it seems that the rush of new information may confuse or overwhelm the market. There's also probably an element of "buy the rumor, sell the news" trading patterns, too. It all came to mind today when I read that Motorola (MOT) reported a disappointing quarter but one that, in essence, was pushing good news just a little further out in the future. The stock, up about 40% since mid-July, is off 5% today.
Motorola said third quarter net income fell 45% to $968 million from last year, revenue rose 17% to $10.6 billion (about $1 billion less than analysts expected) and sales for the fourth quarter might not meet expectations of $12.1 billion. Half of the problem was in Europe where merging wireless carriers delayed spending on new higher-speed GSM networks and thus also on the compatible Motorola handsets, the company said. The rest of Moto’s miss was a shortfall of sales of “iDen” handsets to Nextel after that company merged with Sprint. A new generation of that line including a dual-mode feature for Sprint's CDMA network is coming soon, as well. There was plenty of noise in the numbers themselves as, for example, the 2005 third quarter included a big gain on Moto’s direct investment in Nextel thanks to Sprint.
Here’s how CEO Ed Zander put it after umpty-umpth question from analysts about the miss on last night’s conference call:
There was consolidation going on across the world. It doesn't let us off the hook for not forecasting properly in that particular area. So we have to take that one plus the iDEN one, as in July when we gave you guidance, those two things had different forecast numbers on them. They didn't materialize. One for, we know now, with the dual-mode and the GSM, our checks in the last few weeks or months actually was mostly due to move outs, some of which you just said about, in terms of consolidation and people reassessing their capital budgets. But nothing in terms of competition in the accounts we went after and took a look at.
Not exactly succinct but “move outs” move in later. That had some bulls ready to buy. “We recommend using weakness stemming from the disappointing quarter as a buying opportunity ahead of what should be a return to better execution in the coming quarters,” Morgan Stanley analyst Scott Coleman wrote in his analysis. Albert Lin at American Technology Research struck a contrary note in an interview with Reuters. “The fact the company was light on sales and has 85 percent of its revenue concentrated on cell phones will plague the stock for at least the next several quarters," he said.
It’s also worth noting that today’s sell-off erased little of the prior three month rally. How Moto fares in the fourth quarter may be quite illuminating for those who listen to the market’s noise seeking opportunities.