Goldman Beat a Sliding Scale

The earnings deserve kudos, but they also deserve proper perspective.
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Any Wall Street bank, especially these days, would swap places with Goldman Sachs (GS) - Get Report and I am here to give the business media credit for this: they did get one thing right in Tuesday's coverage of Goldman's second quarter earnings. (We'll get to their oversight in a moment, but let's stay with the happy talk of what they did well for a brief moment.)

Goldman's earnings were down on an absolute basis, even while they surpassed expectations. And most publications appropriately made this clear in their headlines or high-up in their articles, even if it caused some awkward moments for readers, like in this

Wall Street Journal lead


"While some rivals struggle, Wall Street firm Goldman Sachs Group Inc. once again proved its sea legs, posting an 11% profit drop in one of the toughest quarters for the brokerage business."

An 11% drop shows sturdiness? With sea legs like that, who needs to drown?

The Journal's point is well taken, although

Investor's Business Daily

laid it out with a little more certainty in this headline:

Goldman's Q2 EPS Easily Beats Views Despite 7% Decline


Stock price moves are often related to expectations, so it's important that the business media takes note, while not losing focus on how company's are performing in historical terms (history, in business, meaning last year.)

But that brings us to what the business media, those inconsistent little devils, missed. They did not mention that these vaunted expectations had been sliding lower.

In fact, while they had not been cut to ribbons -- as has been the case for the many lesser Wall Street banks, yes



, I mean you -- earnings expectations for Goldman Sachs had come down consistently over the past three months.


Investor's Business Daily

story is pretty well representative of the rest, and the following is the one and only reference made to consensus estimate: "Goldman logged a second-quarter profit of $4.58 a share, down 7% from a year earlier but well above consensus views for $3.42." (They were right conceptually, but their math was a bit fuzzy in reporting the 7% decrease. It was 11%, but we'll forgive them that sin.)

Why is this a problem?

At the time of the report, consensus estimates were $3.42. But only 30 days ago, consensus estimates were at $3.69. And 30 days before that? $3.82. And 30 days before that? $3.94.

Coming in where they did at $4.58 a share, Goldman certainly surpassed expectations, and they are still best in the financial show.

But trends in setting and re-setting expectations merit mention. Goldman's stock was down yesterday, in part because those in the know knew the expectations beat was not as good as widely assumed.

Look: the business media is right to mention expectations. But Wall Street and public companies play the expectations game to a ridiculous degree, tweaking numbers so they can meet or beat them. To explain this, and to present the true nature of the performance vs. expectations, the business media has to mention how early and often these expectations were re-set.

That indicates, among other things, the short-term trends in the business and whether management has the slightest idea what direction business is headed. Management at Goldman obviously does know its business. (These shifts in expectations were not alarmingly big or frequent, considering the financial environment.) But an article that leaves expectations tweaks to the imagination especially in cases like this where numbers were beat but fell short from last year, takes you, the savvy investors, for a fool.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven� column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;

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