With an expanding Libor controversy, a second high-profile brokerage bankruptcy in PFGBest (following MF Global last fall), a looming fiscal cliff, a spate of municipal bankruptcies and a continued anemic recovery, investors are gearing up for what could be one of the most important earnings seasons for market confidence since the financial crisis.
With a handful of early misses fresh on investors’ minds (including Supervalu, Progressive Corp., and WD-40), markets will be keeping a close eye on the flood of 250-plus companies reporting financials over the next two weeks.
On Friday the 13th of July, they were reminded of the potential landmines some companies face, as JPMorgan reported second quarter earnings, revealing a “whale” sized trading loss of $4.4 billion at its chief investment office. (Despite the hit, the bank reported a profit of $5 billion — a gain previously forecasted by CEO Jamie Dimon.)
In all, Wall Street will look to avoid the massive landmines that shook, and shocked, the investing world — companies whose poor earnings results spiraled into financial disaster.
With that said, CNBC and Factset culled through a decade’s worth of earnings misses, mistakes, and utter catastrophes to bring you some of the worst quarterly performances in the history of the S&P 500.
By Jesse Bergman, Margaret Popper and Max Viscio
Posted 13 July 2012
Quarter: 4Q 2007
Loss: $32.7 billion
Adjusted for inflation: $36.2 billion
Sprint posted this huge loss in the wake of its merger with Nextel Communications. With differing work cultures and technological infrastructures, integrating the two companies became a major headache for Sprint and it was forced to write down more than 80 percent of the $36 billion it had paid for Nextel in 2005.
The company has had choppy earnings since, most recently punctuated by a loss of $863 million during the first quarter of this year. On July 15, it plans on launching its 4G LTE network to compete with Verizon and AT&T in the high-speed mobile network market.
Quarter: 4Q 2008
Loss: $38.1 billion
Adjusted for inflation: $40.7 billion
It may be surprising to see an oil company on this list, but in the aftermath of the Great Recession, demand for petroleum plummeted, taking Conoco’s profits with it. Oil prices fell nearly 70 percent from their peak of $145 per barrel in July 2008 to a low of less than $38 per barrel in December 2008.
In the fourth quarter of 2008, ConocoPhillips suffered a goodwill impairment from its exploration and production assets while also having to write-down its investments in overseas oil companies.
Earlier this year, the company split off its refining, marketing, and chemicals business into a new $20 billion corporation called Philips 66.
Pictured: ConocoPhillips CEO James Mulva in Detroit in June 2009, six months after the loss was announced.
Quarter: 1Q, 4Q 2002
Loss: $54.2 billion, $44.9 billion
Adjusted for inflation: $69.2 billion, $57.4 billion
When AOL and Time Warner merged in 2001, investors viewed it as a potential match made in heaven. But with the dot-com bubble bursting and the early 2000s recession, the marriage between the two titans fell on hard times.
AOL Time Warner’s 2002 losses were dragged under thanks to a change in the accounting for goodwill — the premium a buyer pays above the book value of the company it’s buying. The new rule on goodwill impairment required booking a loss if the goodwill in the purchase price turned out to be demonstrably overstated.
In 2002, the company was hit with two nasty quarters that added up to a yearly loss of nearly $100 billion and eventually, Time Warner spun out the ailing Internet company in 2009.
Pictured: Former headquarters of AOL Time Warner in New York
Quarter: 2Q 2001
Loss: $19.4 billion
Adjusted for inflation: $25.2 billion
One of the classic victims of the dot-com bubble, Nortel bet on its thousands of miles of high-bandwidth fiber optic cable to take advantage of the promised boom. Unfortunately, it lost that bet and paid a heavy price for it.
Though Nortel lingered for the better part of a decade afterward, it filed for Chapter 11 bankruptcy in 2009 and is undergoing liquidation of its U.S., Canadian and U.K. assets.
Pictured: John Roth, then-president and CEO of Nortel Networks, addresses the Canadian Club in February 2001 in Toronto.
Quarter: 3Q 2008
Loss: $23.9 billion
Adjusted for inflation: $25.5 billion
Many blamed Wachovia’s troubles on its acquisition of Golden West Financial in 2006 at the height of the housing boom. Fast forward a couple years and the new assets became an albatross around the bank’s neck that eventually dragged it to the brink of insolvency.
Depositors starting withdrawing their accounts. Under pressure from the FDIC, Wachovia agreed to be taken over by Citigroup. In a dramatic twist, the FDIC had Wachovia renege on the Citigroup deal and accept a better bid from Wells Fargo. Wells completed the takeover in December 2008.
Pictured: John Stumpf, CEO of Wells Fargo, presents a replica of the Wells Fargo stagecoach logo to Robert Steel, then-CEO of Wachovia, in October 2008.
Quarter: 4Q 2004
Loss: $18.4 billion
Adjusted for inflation: $21.7 billion
Viacom’s record loss in the fourth quarter of 2004 can mostly be attributed to its Infinity Broadcasting unit, which failed to generate as much revenue as was initially expected.
In 2005, Viacom and CBS split up, after a five year marriage, and Infinity became CBS Radio. Today the CBS Corp., the legal successor to the old Viacom, is profitable and has a market cap of roughly $20 billion.
Pictured: Then-Co-President and Co-COO of Viacom Les Moonves and then-President of CBS Entertainment Nancy Tellem speak at a news conference in July 2004, months before the company's huge quarterly loss.
Quarter: 3Q 2007
Loss: $38.9 billion
Adjusted for inflation: $43.1 billion
Even before the financial crisis, the performance of the U.S. auto industry was decidedly anemic and Detroit’s Big Three — GM, Ford, and Chrysler — were seen to be on the decline.
Though most of GM’s losses came in the form of write-downs on deferred tax credits, the $1.6 billion operating loss sent a shockwave through the industry. It was a sign of tough times ahead.
One bankruptcy and government bailout later, GM has returned to form, according to some observers. The company posted a sizable profit when it reported earnings in May.
Pictured: Rick Wagoner, then-chairman and CEO of GM, at a December 2008 news conference after President George W. Bush's $17 bilion emergency loan to the Big Three.
Quarter: 4Q 2008, 3Q 2008
Loss: $61.7 billion, $24.5 billion
Adjusted for inflation: $66.9 billion, $26.2 billion
American International Group takes the dubious top prize for the largest quarterly loss in U.S. history. Following its high-profile credit default swap issues and a downgrade of its credit rating, AIG was hit with a massive liquidity crisis that threatened to take down the company, prompting a cash injection from the U.S. government as it struggled to contain a growing crisis.
All told, taxpayers gave AIG a massive bailout totaling hundreds of billions. In exchange, AIG gave the government an 80 percent ownership stake.
Since the financial crisis, AIG has been selling its assets in order to pay off its government loans. The U.S. still owns roughly 60 percent of the insurer.
Pictured: AIG's then-CEO Edward Liddy testifies before Congress in May 2009.