5 Reasons to Worry About Next Week

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The economy is showing signs of fumbling the recovery.

Mortgage rates are now at a 52-week high, and just wait until that disrupts the housing boom and markets for other big-ticket financed items.

There's also that Gallup poll released yesterday, showing that the confidence that Americans have in Congress has fallen to an all-time low. Yikes!


The news isn't just iffy on the macro level. There are also more than a few companies that aren't pulling their own weight in this supposed economic recovery.

There are still plenty of names that aren't growing their earnings. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.

Company

Latest Quarter EPS (estimated)

Year-Ago Quarter EPS

Adobe Systems

$0.34

$0.60

Finisar

$0.17

$0.21

Jabil Circuit

$0.54

$0.64

TIBCO Software

$0.18

$0.26

Darden Restaurants

$1.04

$1.15

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Adobe. The leading maker of desktop publishing software has been in for a rude awakening on this side of the dot-com revolution. Why pay for Photoshop when Instagram can doll up a digital snapshot? Why whip up a PDF document on Acrobat when free Google Documents will do the trick? There will never be iOS support for Adobe's Flash, will there?

It's against this backdrop that revenue and profitability are sliding. Analysts see a 10% dip in revenue with profitability being shaved nearly in half.

Finisar is also slumping. Optical networking should be doing better these days. If we are in an economic recovery, companies should be investing in Finisar's fiber-optic subsystems and components.

They're not. Finisar has seen its revenue dip 3% through the first three quarters of fiscal 2013. Business turned up during the third quarter -- and revenue is expected to inch slightly higher this time around -- but it isn't expected to be enough to lift fiscal 2013 into positive territory.

Lazard upgraded Finisar last month -- going from "neutral" to "buy" -- arguing that pessimism was too thick. Slapping a $17 price target given the "sufficiently deflated expectations" and "underestimated datacom catalysts" seems well-reasoned enough, but it's hard to get excited about Finisar as long as profitability is falling.

RBC Capital had some encouraging words for Jabil earlier this week. The analyst is encouraged by the electronics contractor's near-term prospects as enterprise seasonality and synergies of its recent merger with plastics contract manufacturer Nypro kick in. Jabil completed its purchase of Nypro two months ago.

For now, investors will have to sit through another quarter of ho-hum top-line growth and contracting margins. It also doesn't help that Jabil has come up short on the bottom line in two of the past three quarters.

TIBCO is a provider of infrastructure software for companies. Just like optical networking, enterprise software companies should be thriving in an improving climate. That's not happening at TIBCO, where the pros see profitability sliding more than 30% on flat revenue growth.

TIBCO's integration process management and business optimization software solutions should be in high demand these days. Its solutions help businesses make better decisions more quickly. It's just not happening. 

"We remain very focused on continuing the changes we initiated last year to improve our execution," CEO Vivek Ranadive claimed in the earnings release of TIBCO's previous quarter, but the enterprise software company still fell short on the top line and provided weaker-than-expected guidance for the quarter that it will report on next week. 

TIBCO pointed to weakness in Northern Europe last time around, but scapegoats aren't excuses when overall profitability is going the wrong way.

Finally, we have Darden Restaurants. The company behind Olive Garden, Red Lobster, and a half-dozen other concepts that you have probably tried once or twice is in a funk. Casual dining itself has been soft as the hungry flock to fast-casual chains that are cheaper and faster but still provide quality eats.

It's a problem. In its previous quarter, same-store sales ran negative at both Olive Garden and Red Lobster in every month. Its third-largest concept -- casual steakhouse LongHorn -- posted negative comps in two of the three months.

Darden's trying. Two weeks ago it introduced a shrimp and lobster pot pie at Red Lobster topped with the chain's signature Cheddar Bay biscuit in the form of a crust. However, until diners return to casual dining -- and that doesn't appear to be happening for anything outside of the upscale concepts -- Darden will have to contend with diners who prefer fast-casual's quick quality eats without the need to tip the cashier.

Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.

The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.

The more I think about it, the less worried I become.

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The article 5 Reasons to Worry About Next Week originally appeared on Fool.com.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems and Tibco Software. The Motley Fool owns shares of Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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