With only a week into the fourth quarter, the number of companies that have already rejiggered their financial forecasts--even before they've reported their third-quarter results--has gone up two-fold, according to a company that tracks earnings estimates.
SAP and Netflix are two of the latest examples of companies that have retooled Wall Street's expectations for how to perceive their fourth quarter financial performance, even though they have yet to announce their third quarter results that ended on September 30.
To date, 43 companies have issued preliminary guidance for the fourth quarter, and while the aggregate numbers are low, it nonetheless is twice the level that has been seen in the previous three quarters in the days that followed the end of the quarter, said David Dropsey, senior research analyst for Thomson Reuters.
"In this kind of economic climate, it could be the start of a trend to offer (financial) guidance more often and earlier," Dropsey said.
Typically, companies usually wait until they report their quarterly results and at that time offer up a forecast of how they think they'll do for the coming quarter and year. That guidance will often send Wall Street analysts scrambling to retool their earnings estimates and projections--figures that investors will use as a tool when assessing whether to plunk down money on a particular stock.
In the case of SAP and Netflix, which both indicated the next three months will be rougher than they previously thought, investors got spooked big time.
SAP's shares plummeted 17.6 percent in intraday trading before closing at $39.68 a share, down 13 percent, during the regular trading day. Netflix, meanwhile, took a 13 percent hit in intraday trading before regaining some of that lost ground to close at $26.49 a share, down 8.56 percent.
And although the number of companies making preliminary warnings has doubled in comparison with previous quarters, those warnings aren't always bad news.
Historically, for every two companies issuing negative preliminary quarterly results, there is one company issuing a preliminary warning that its quarter will be better than Wall Street's forecast.
That same 2-to-1 ratio remained true in this latest quarter, as well, Dropsey said.
"For the most part, tech and consumer companies that sell discretionary items tend to give the most guidance," Dropsey said. "In this environment, where there is a lot of negative views on companies that sell discretionary items, those companies may want to say, 'we're not doing so bad.'"