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Guidance becomes momentum killer as outlook turns weak

Friday, 17 Jan 2014 | 10:05 AM ET
Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Guidance: the stock killer.

It's bad enough to have an earnings miss, but guiding lower before earnings come out—or giving disappointing guidance for the current quarter—can be a real killer for a stock's momentum. We are seeing a lot of that this morning.

UPS announced expected fourth quarter (Q4) results of $1.25, below expectations of $1.43. The delivery giant was hardly alone in this regard.

Shell earnings 'disappointing': Pro
Malcolm Graham-Wood, founding partner at Hydrocarbon Capital, says Shell's earnings were "disappointing" after the company announced that fourth quarter profit will be "significantly lower than recent levels".

Last night Elizabeth Arden reported preliminary Q2 guidance of $1.05-$1.08 versus prior guidance of $1.30-$1.60. Meanwhile, Royal Dutch Shell says Q4 profit will be significantly lower than recent levels, due to lower oil and gas prices and problems in downstream production.

Intel did OK on the numbers but provided uninspiring revenue guidance.

General Electric came in in-line with expectations, but is trading down. What's the problem? At least one analyst complained that the company made the numbers due to cost cutting, which will eventually end. This is real nit-picking: companies have been making numbers on cost cutting for several years.

What to do? Focus on rich people. At least that's what American Express decided to do. Earnings came in a penny shy of expectations, but billed business in its core market grew 9 percent and total revenue was up 5 percent. CEO Ken Chenault said, "Fourth quarter results reflected a healthy increase in billed business in the U.S. and internationally."

Elsewhere

1) It's the commentary that matters. I noted yesterday I am particularly interested in what everyone says about economic conditions, particularly in Europe. Observations this morning, on conditions both at home and abroad, were modestly bullish:

GE's Jeff Immelt: "We saw good conditions in growth markets, strength in the U.S., and a mixed environment in Europe."

Schlumberger: "The overall global economic outlook continues largely unchanged, with fundamentals continuing to improve in the U.S., and Europe seemingly set for stronger growth."

2) I'm puzzled by the number of people who think Intel doesn't matter anymore.The thinking is they have been left behind because of too great a focus on the declining PC business. They've been overtaken by Qualcomm and Samsung, who are providing the chips for smartphones and iPads.

Well, yes, but here's what worries me: Intel is a major component in the Semiconductor Index, and the SOX and the S&P 500 have moved practically in tandem all through 2013.

In other words, the behavior of semis matter.

3) Initial public offerings: after a roughly one-month lull, the IPO business is heating up again as four IPOs priced overnight at the New York Stock Exchange (NYSE):

a) The world's largest commercial helicopter operator CHC Group (HELI) priced 31 million shares - more than expected - at $10, below the downward revised range.

b) Oil and gas exploration and production company EP Energy (EPE) priced 35.2 million shares— less than expected—at $20, below the price talk.

c) Oil and natural gas exploration and production company RSP Permian (RSPP) priced 20 million shares at $19.50, in the middle of the range.

On the NASDAQ, Hennessy Capital Acquisition (HCACU) priced 10 million shares at $10, in line with initial price talk.

By CNBC's Bob Pisani

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S&P 500
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US 10-YR
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UPS
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RDEN
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RDSA
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INTC
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GE
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AXP
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SLB
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QCOM
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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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