4 Familiar Firms Going the Wrong Way This Earnings Season
It won't always be that way. Let's take a look at four companies that are expected to post year-over-year declines in their upcoming reports.
The world's largest software company isn't just about tethering desktops and laptops to Windows and getting as many people as possible to fire up Microsoft Office whenever they want to crank out a document, spreadsheet, or presentation.
Microsoft is expanding into hardware, and the success of its Xbox One this video gaming cycle, the introduction of the Surface tablet, and the purchase of Nokia's handset business have transformed Mr. Softy into more than just a software company. The downside to all of the gadgetry rolling out of Microsoft is that this isn't the same high-margin fare that investors have been treated to in its prime. Net income margins -- the percentage of revenue that makes it all the way down to after-tax profitability -- has declined from a peak of 33.1 percent in fiscal 2011 to 23.4 percent over the past year.
Analysts may see Microsoft's revenue inching slightly higher this quarter, but they see earnings of just 71 cents a share when it reports later this month. Microsoft rang up a profit of 78 cents a share a year earlier.
Flipping burgers has been a meaty business for most chains not called McDonald's. The leading burger chain has stumbled badly lately. We're eating out more, but we're just not doing it at the home of the Golden Arches.
McDonald's just wrapped up what should be its fifth consecutive quarter of declining comparable-store sales. Most of the restaurants are franchisee-owned, but if sales are slumping, they have less to pay McDonald's itself. The market sees the struggling chain serving up net income of $1.23 a share when it reports later this month. It registered a profit of $1.40 a share during the prior year's holiday quarter.
The leading online retailer continues to grow its global reach, but sales growth isn't translating into earnings growth. Amazon didn't have a problem drumming up record sales over the holidays. It issued a glowing press release just after Christmas, and the market's betting on a 16 percent top-line gain.
Amazon's problem is that it's been investing in too many projects and initiatives, and that often means losing money in order to make money in the future. Amazon's had a hit with the Kindle and Kindle Fire. It flopped badly with Fire Phone. The jury's still out on Fire TV. However, all of these projects eat into profitability. Analysts see Amazon's earnings this holiday shopping quarter plunging 65 percent to 18 cents a share.
There was a time when running an office supply superstore was as easy as tapping one of Staples' "That was easy" buttons. Times have changed. Staples began to stumble a couple of years ago with its overseas operations, but now it's also struggling closer to home as small businesses find cheaper supplies online.
The merger of its two closest rivals was supposed to provide some relief to Staples, especially with Office Depot (ODP) moving to close hundreds of redundant namesake and OfficeMax stores. It hasn't panned out, and market pros are now forecasting earnings of 30 cents a share out of Staples. It came through with 33 cents a share in net income a year earlier.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and McDonald's. The Motley Fool owns shares of Amazon.com, Microsoft, and Staples. Try any of our Foolish newsletter services free for 30 days. Want to make 2015 a winning investment year? Check out The Motley Fool's one great stock to buy for 2015 and beyond.