10/17/2012
By David Silver, Research Analyst

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Earnings season continues this morning and the companies that have come out after the bell yesterday and before the market opened this morning left much to be desired.  We are going to concentrate on four large companies, all of which I am sure we are all familiar with. 

The first is Intel (INTC), which kicked off tech earnings season, and even after a warning back in the beginning of September, the results left the Street disappointed.  Revenue was actually slightly above the Street's expectations, while earnings per share handily beat the Street's estimates. However, the story of the earnings season thus far has been expectations, and the Company is being affected by slower PC demand and the growth of tablets and smartphones. The stock was down in the aftermarket and is indicating a weak open this morning.

Next is Big Blue, no not the New York football Giants, but IBM.  The Company reported declining third-quarter revenue in each of its major segments, including a double-digit dip in hardware sales, the latest indication that businesses could be cutting back on technology spending. IBM only backed its full-year earnings view rather than raising it for the first time this year, adding to investors' disappointment.

The next financial firm to release earnings this quarter was Bank of America, the second largest U.S. bank in terms of assets.  On the last day of the quarter, Bank of America disclosed plans to settle financial crisis-era litigation over its acquisition of Merrill for $2.43 billion. The bank said it would take a $1.6 billion charge in the third quarter to cover costs of the settlement and other litigation, along with other charges. an improvement in credit quality allowed Bank of America to release $2.3 billion from its loan-loss reserves, helping its bottom line. The net charge-off rate was 1.86%, compared with 2.17% a year earlier and 1.64% in the prior quarter.

Finally, we have one of the world's largest food and beverage companies, PepsiCo (PEP).  A day after rival Coca-Cola Company (KO) reported earnings that were relatively in-line with forecasts, PEP announced earnings that fell short.  Organic revenue improved 5% year over year, while currency represented a significant headwind.  Unlike KO, the Company saw operating margins expand.  The company also backed its full-year guidance.

David Silver
Wall Street Strategies