Earnings Season’s Biggest Disappointments So Far

Though there have been more ‘beats’ than ‘shortfalls’ to kick off this earnings season, some of the downside surprises were not only disappointing, but may be red flags investors will want to keep in mind with related stocks this quarter, and the same stocks next quarter.

In no particular order, these are – so far - the most concerning failures to meet forecasted earnings:

And still no end in sight: It wasn’t just that Worthington Industries Inc. (NYSE:WOR) came up short… it’s that the company came up short by half, earning 10 cents per share rather than the estimate of 20 cents. Sales were down 10%.

The alarming part about last quarter isn’t really the numbers though…. it was the footnote added via the news release. The company’s CEO noted that weak demand metal construction framing – Worthington’s bread and butter - had yet to hit bottom.

Adding insult to injury: As if falling short of this year’s target as well as falling short of last year’s actual earnings figure wasn’t bad enough, doing so despite a 14% improvement in revenue is like pouring salt in investors’ wounds.

Healthcare Services Group (NASDAQ:HCSG) did just that though, only earning only 17 cents versus an anticipated 21 cents. The culprit is pretty much inexcusable… double digit increases in selling and administrative expenses. The healthcare support organization simply doesn’t have that kind of flexibility in its income statement.

Auto racing’s ‘crowd draw’ tank is still empty: Consumers may be spending more at the malls and for entertainment than they were a year ago, but car racing hasn’t seen any benefit of a consumerism revival yet. International Speedway Corp. (NASDAQ:ISCA), which hosts a variety of auto racing events, fell 15% short of its estimated operating earnings of 53 cents per share last quarter.

As evidence of tepid demand and event attendance, ISC has decided to lower ticket prices, partially explaining the 8.4% dip in revenue. The gambit has likely helped, but clearly hasn’t fully offset the lack of race-related spending.

Shrinking its way to success?: One would think with the modest improvement in the economy - and the shipping needs that stem from it - that railroad-related services would be seeing at least slightly better days. And they are…. it’s just not enough.

Case in point? Greenbrier Companies (NYSE:GBX). Kudos to the railcar refurbishing and manufacturing company for shrinking the quarterly net loss from 45 cents per share to 28 cents. But, cutting the daylights out of costs isn’t a long-term growth solution – revenue was still down 30%. Worst of all, the company expects 2010’s earnings to be weaker than 2009’s.