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Company Earnings Are About to Get a Lot Uglier in 2012

BOSTON ( TheStreet) -- Europe's struggles again dominated U.S. stock market trading Thursday, while investors were relieved by American retail and jobs reports.

What U.S. investors may be overlooking, though, is a rash of companies with disappointing guidance for the fourth quarter. And if you think the fourth quarter could be bad, it could get worse in 2012 as earnings and sales forecasts get trimmed.

Before the start of trading, retailers Target (TGT - Get Report) and Costco Wholesale (COST) published same-store sales for the critical holiday month of December. According to Thomson Reuters, sales rose 3.4% in December, slightly better than estimates for an increase of 3.3%.

But along came a wave of earnings warnings. Target now expects fourth-quarter earnings of $1.35 to $1.43 a share, below consensus estimates of $1.48. JCPenney (JCP - Get Report) and American Eagle Outfitters (AEO - Get Report) did the same.

As Bespoke Investment pointed out yesterday, fourth-quarter earnings estimates have been trickling lower since Sept. 30, so the weak fourth-quarter guidance from retailers isn't entirely a surprise.

Bespoke noted that fourth-quarter earnings estimates have dropped from an expected growth rate of 14.1% to a lowly 6.2% by Jan. 3. While energy should see earnings growth of 21% in the quarter based on estimates, the telecom, materials and utilities sectors should see declines.

Retailers weren't alone in disappointing investors with their quarterly guidance today. Wireless technology company Rogers (ROG - Get Report) and semiconductor maker Mindspeed Technologies (MSPD), too, were also out with fourth-quarter sales guidance below estimates.

Investors should be worried, though, that the weak outlooks are extending beyond the most recent quarter. We're starting to see 2012 guidance coming in far below consensus estimates, with Barnes & Noble (BKS - Get Report) an example from today. Buried in a press release from the company that carried the headline "Barnes & Noble Reports Record NOOK Sales," the bookseller lowered its 2012 outlook for sales and earnings, throttling the stock more than 20%.
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AEO $14.62 0.83%
BKS $11.45 0.00%
JCP $9.03 -3.11%
LLY $74.87 -1.81%
ROG $61.79 -3.17%


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