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Tickers in this Article: ADBE, AAPL, FDX, UPS, FDO, AA, PEP
Large year-over-year earnings increases have typically been the norm throughout 2010. However, since 2009 corporate performance was so poor, a small absolute earnings movement resulted in a massive percentage leap. The earnings reports and guidance forecasts which will be coming in once a "normal" benchmark level of comparison is established should provide a more realistic corporate picture. However, current stock market reactions suggest that analysts place unrealistic growth expectations on firms. (For more, see Analyst Forecasts Spell Disaster For Some Stocks.)

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While software giant Adobe Systems (Nasdaq:ADBE) reported a 69% jump in earnings, its shares have fallen by almost 20%. Despite a strong increase in revenue and operating margins, the company provided a forecast that came short of analyst expectations. Following Apple's (Nasdaq:AAPL) criticism of flash, which was followed by restrictions that blocked the software on Apple products and the eventual repeal of the decision, Adobe has failed to win the praise of investors. While markets are undoubtedly forward looking, the recent drop in Adobe's share price reflects a shortsighted bull sentiment rather than a thorough long-term perspective for this leader in the creative software market.

FedEx (NYSE:FDX) found itself in a similar position - strong performance, yet a beat down stock due to below expectation guidance. Operating income and net income were up 99% and 110% on higher margins and improved activity, yet the company faced criticism and a 4% stock price drop following the announcement. In addition to the expected 1700 jobs to be cut, management provided cautious guidance despite expected strong holiday activity, which drew much negative attention in the investment community. On October 21, an accurate measure of the industry will be revealed as United Parcel Services (NYSE:UPS) announces their earnings.

Family Dollar (NYSE:FDO), Alcoa (NYSE:AA) and Pepsico (NYSE:PEP) are some of the major companies that will be releasing earnings within the next few weeks. With recent market trends, it seems that the most important factor that will be considered by professional investors is not how the company performed, but how it is expected to perform the next quarter- making the results of this quarter obsolete.

Bottom Line
The underlying rule of forecasting is "your forecast will always be wrong"; yet, conservative forecasts are often condemned by Wall Street. The expectations of steady 69% growth, as seen with Adobe, or 110% growth as produced by FedEx, cannot be expected to continue indefinitely. However, analysts often continue to place unrealistic expectations on firms - expectations that simply cannot be attained on a regular basis. FedEx and Adobe both have a strong business model, intelligent management and cater to a large consumer base. As the unemployment rate remains at a staggering 9.6%, outsized growth is simply unrealistic. It's worth noting that the last company to lose their way in a desperate attempt to meet the street's expectations was Enron. (For more stock analysis, check out Best Dividend Stocks.)

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