Despite the generally ebullient financial press during the recent market rally, many stocks have had shocking shortfalls when reporting earnings relative to earnings estimates. This may indicate we are not quite clear of the recession just yet.
IN PICTURES: Eight Ways To Survive A Market Downturn

I am not a big fan of earnings guidance and estimates, as I believe that it can provide incentive for management to do the wrong thing to meet those estimates. If you examine the major cases of fraud in our generation, many of them began with a desire to meet guidance. Despite that, I felt that it might be useful to examine those stocks that had huge earnings guidance misses in the second quarter of 2009, to see if there were any unifying factors to help investors avoid stocks that may be on this list in the third quarter.

Tech Misses
Ciena Corp (Nasdaq:CIEN) had one of the largest earnings estimates misses in its last quarter, which was reported back in June. The company reported an adjusted net loss of 25 cents per share vs. an expected loss of nine cents. This sounds pretty bad, but it's even worse if you include the non-cash charge of $455.7 million for impairment of goodwill that Ciena had in the quarter. (For more on impairment, see Impairment Charges: The Good, The Bad and The Ugly.)

Another technology company reporting a large miss was Intel Corporation (Nasdaq:INTC), which reported a loss of seven cents versus the estimate of eight cents in income. The market didn't care about that, however, and drove the price up based on a positive outlook for sales.

Consumer Misses
Jumping over to the consumer for a moment, Harley Davidson (NYSE:HOG) missed its earnings by 16 cents, and Host Hotels & Resorts (NYSE:HST) by 12 cents. Despite an alleged recovery in the economy, Americans seem reluctant to spend money on discretionary consumer items and travel.

Accounting Issues
One of the first issues an investor has is determining what earnings number to use when a company reports. Accounting rules require U.S. listed companies to report its net income under generally accepted accounting principles (GAAP). However, there is no rule against reporting "adjusted earnings" or "operating earnings" as long as the company explains the measures in a footnote.

Many companies report several sets of numbers in earnings releases, and these differing numbers must be reconciled against the estimates contained in recognized financial services like First Call or Reuters. Most of the time, the estimates embedded in average earnings estimates circulating on Wall Street typically are not GAAP numbers, and exclude one time items, and the like.

The Bottom Line
Although many companies have missed earnings estimates in a big way, these stocks have also rallied with the market. as investors seem content to forgive these companies for their missteps.

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