5 Reasons to Worry About Next Week

We're just dipping our toes into earnings season. Why is the water so cold?

The economy is showing signs of fumbling the recovery. Initial jobless claims clocked in higher than economists were expecting. The United Kingdom technically slipped into a double-dip recession.

It's not just iffy news at the macro level.

There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.

There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.


Latest-Quarter EPS (Estimated)

Year-Ago Quarter EPS

My Watchlist

Sohu.com (NAS: SOHU)




Avon Products (NYS: AVP)




Acme Packet (NAS: APKT)




Garmin (NAS: GRMN)




World Wrestling (NYS: WWE)




Source: Thomson Reuters.

Clearing the table
Let's start at the top with Sohu.com.

One of China's leading Internet portals, Sohu also operates a fast-growing search engine and video website. The dot-com darling also has a majority stake in one of the country's larger online gaming companies.

Business isn't necessarily declining for the company. In fact, analysts see revenue climbing nearly 30% when the company reports on Monday morning. The rub here is diminishing margins.

Investors will also want to pay close attention to Sohu's guidance. The world's most populous nation has already gone public with lower economic growth targets than what the country has experienced in recent years, and earlier this week China's top search engine posted softer-than-expected revenue growth and guidance calling for decelerating top-line growth.

Avon Products is a bit of a drama queen these days. The direct marketer of cosmetics let its CEO go, and earlier this month became buyout bait when Coty stepped up with an unsolicited offer that was ultimately rebuffed.

The departure of controversial CEO Andrea Jung became official earlier this week after Sherilyn McCoy took the helm on Monday. Jung had the distinction of being the first female CEO in Avon's 126-year history, but she also attracted the wrong kind of attention when stateside sales started to slip and allegations of bribery to foreign officials surfaced.

Acme Packet's session border controllers are essential in making crisp and reliable Web-based phone calls. Unfortunately, it's disconnecting on the bottom line. If you want more bad news, Acme Packet has actually come up short against Wall Street's profit targets in the past two quarters. It's not the trend that investors like to see heading into a report next Wednesday where the pros already see Acme Packet taking a 37% hit.

Garmin is the GPS giant that's starting to find its way. The market's braced for a slight dip in profitability, but Garmin has delivered back-to-back quarters of trouncing analyst estimates by better than 40%. Just as the Acme Packet trend is problematic, investors paying attention won't be surprised if Garmin actually bucks the trend from this list of companies and actually finds a way to deliver bottom-line growth.

Finally we have World Wrestling Entertainment. The 6.1% yield may be rewarding patient investors, but the over-the-top wrestling champ has been consistently missing analyst income projections over the past year.

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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At the time thisarticle was published Motley Fool newsletter serviceshave recommended buying shares of Acme Packet and Sohu.com. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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