THE DAY AHEAD: A look at the guidance game
COMMENTARY -- Most of today's big market movers will be throttled or loved on Wall Street all based on how execs managed analysts and their quirky financial models.
It's a game being played out in the tech sector, which is increasingly being hit by a slowing economy. CEOs are tossing around light switch/economy analogies with reckless abandon.
Here's a tour of today's hot stocks:
Hewlett-Packard
Talk about Wall Street mismanagement 101.
Hewlett-Packard (NYSE: HWP) CEO Carly Fiorina had every opportunity to lower estimates for the company's fourth quarter in late November at an analyst meeting. She didn't. She didn't even open the door for the slight possibility that there would be problems. Fiorina stuck with guidance of growth in the mid-teens even though all of Wall Street was raising flags about slowing information technology.
A few weeks later HP followed up with a press release indicating that things were just fine.
On Thursday, HP took the hit. The company said its first quarter earnings would fall short of consensus estimates with sales growth in the low- to mid-single digits. HP said it didn't see any improvement until the second half of the year.
We knew it was coming -- who didn't? A host of Wall Street analysts have flagged shares of HP based on concerns about a weakening economy. Fiorina said HP had expected a "soft landing" in the economy, but added that there was a "significant change in market conditions in recent weeks."
That's true, but Fiorina only had to tone down expectations just a bit. For an example of how to lower the bar without scaring Wall Street senseless, check out Cisco CEO John Chambers' move on Wednesday. HP's biggest problem was overpromising when the odds were good the company would underdeliver. Now Fiorina has credibility problems.
Gateway
Gateway (NYSE: GTW) missed its earnings targets by a Country Store mile and cut its work force. The surprise wasn't the shabby quarter, but that Gateway's original profit warning wasn't even close to predicting results.
Gateway earned 12 cents a share, well below First Call estimates of 37 cents a share.
The problem? Gateway should have warned later than it did. It based its whole quarter performance based on the Thanksgiving weekend. Little did it know things were going to get much worse. The fourth quarter debacle indicates that the economy is only one of Gateway's worries -- the company may have few internal issues too.
DoubleClick
DoubleClick (Nasdaq: DCLK) played the guidance game pretty well. A few weeks ago, the online advertising giant took its lumps and lowered guidance substantially.
When DoubleClick topped reduced estimates ever so slightly, folks breathed much easier. The company even lowered its earnings range for the fiscal year and first quarter, but analysts were expecting something much worse.
By warning early and taking a bath, DoubleClick got through most of its bad news. Shares are likely to move higher -- only because the worst may be over. Perhaps, Yahoo! took a page from DoubleClick's profit warning playbook on Wednesday.
Ariba
Ariba (Nasdaq: ARBA) did everything right. It topped first quarter estimates and raised its projections for 2001. Nevertheless, analysts are split about the company's prospects.
The company forecast per-share earnings of 6 cents on second quarter revenue of $180 million to $185 million, and 25 to 26 cents on full year revenue of $780 million to $790 million.
First Call consensus was calling for an Ariba second quarter profit of 4 cents per share on revenue of $178.5 million and full year earnings of 18 cents per share on revenue of $751.2 million.
Although the outlook was raised, some analysts came away disappointed. Ariba didn't lift estimates enough and shares are likely to be sluggish. The lesson here is that there can be too much of a good thing -- Wall Street gets greedy.
TDAIN
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