Summary of 2nd Quarter 2009 Gauge Scores

We have nearly finished examining the second-quarter 2009 financial results for the 19 companies we're currently tracking.  We posted as many as four articles per company in the following sequence:

• Look Ahead - before earnings release
  
• Income Statement Analysis - soon after release
• Financial Gauge Analysis - 1 to 2 weeks after release
  
• Financial Gauge Update - 1 to 2 weeks after 10-Q/10-K
  

There are some exceptions to the pattern.  We don't post Look Aheads for a few companies, and Financial Gauge updates are not needed if the 10-Q/10-K is filed within a few days of the earnings release.

The following table summarizes the gauges and the changes to the scores from the previous quarter.  Apple (NASDAQ: AAPL) and Procter & Gamble (NYSE: PG) were new additions in the second quarter to the list of companies under analysis.  Bankrupt Nortel Networks (OTC:NRTLQ) was dropped.

Company	Overall Gauge (100 = max)	Strongest Gauge and score (25=max)	Weakest Gauge and score (25=max)	Gauge Rising the Most	Gauge Falling the Most
AAPL	48 (-12)	CM (13)	G (10)	P (+0.1)	V (-7)
ADP	59 (0)	V (19)	G (6)	V (+2)	G (-8.5)
BP	31 (-20)	CM (10)	G (3)	None	V (-9)
BR	52 (+22)	CM (19)	G (6)	V (+10)	None
CSCO	37 (-16)	P (12)	G (1)	None	V (-8)
COP	27 (-17)	CM (10)	G (0)	None	G (-9)
EIX	28 (-6)	V (10)	G (1)	CM (+3)	V (-6)
HD	28 (+1)	P (8)	G (3)	G (+3)	CM (-1)
INTC	27 (-3)	CM (13)	G (0)	CM (+3)	V (-4.5)
KG	18 (-10)	CM (7)	G (0)	CM (0.1)	V (-5)
MSFT	61 (-8)	CM (21)	G (1)	CM (+5)	V (-6)
NOK	28 (-17)	P (10)	G (1)	None	V (-9)
NVDA	20 (-1)	CM (7)	G (0)	P (+2)	V (-2)
PEP	44 (-4)	V (14)	G (1)	P (+.1)	V (-2)
PG	44 (-8)	V (20)	G (1)	None	G (-4)
PRGN	N/A	N/A	N/A	N/A	N/A
TDW	59 (-8)	V (21)	G (6)	P (+2)	G (-5)
WMT	29 (-7)	V (10)	G (1)	V (+1)	G (-10)
WPI	39 (-4)	CM (12)	V (8)	CM (1.5)	V (-2)

CM= Cash Management
G = Growth
P = Profitability
V = Value

Read the rest of this article

Documenting Changes to Our Gauges

During the two-year-plus life of this blog -- this is post #499 -- we have made frequent small adjustments to our gauges of corporate financial performance and value.  It isn't unusual for us to tinker with some factor multiple times until we get comfortable with it.

The following are the types of changes that we have made (and are likely to make again):

• Add or delete a financial metric from a category gauge
• Alter the relative weights of the various metrics used to compute one of the category gauge scores
• Alter the relative weights of the category gauges when determining the Overall Gauge score.

The changes have been intended to make our analyses more accurate, complete, and insightful and, if possible, make the gauges better indicators. 

The catalyst for a change might be a belated realization that we had not been giving some aspect of a company's finances sufficient attention.  Or, we might have discovered that a financial ratio we relied on produces misleading results under certain circumstances.  It might also be recognition that a certain factor provides a better or worse indication of future results that we had first thought.


Our second-quarter 2009 analyses will include an additional Growth metric: the annual growth in Operating Profit after Taxes, when averaged over 4 years.  We have long wanted to add a multi-year assessment of company growth, but we've found Net Income to be too much affected by non-operating items as well non-recurring operating items.

We will also start, as part of an experiment, to compare Price/Earnings ratios to this Operating Profit growth rate to create a (better, we hope) variant of the well-known PEG ratio.

Although we've tried, we haven't done a good job at communicating these changes to readers.  We resolve to do better.  Too often, we have simply referred to "algorithm tweaks" to explain scoring changes.

As a first step, we have revised the descriptions of the GCFR dashboard and the Cash Management, Growth, Profitability, Value, and Overall gauges.  These posts were some of the first items published on this blog, and they had not been kept up with the changes we had made since.

Summary of First-Quarter 2009 Scores

We have nearly finished reviewing the first-quarter 2009 financial results for the following 18 companies:

• Automatic Data Processing (NASDAQ: ADP) - Analysis and Update
• BP (NYSE: BP) - Analysis
• Broadridge Financial (NYSE: BR) - Analysis
• ConocoPhillips (NYSE: COP) - Analysis and Update
• Cisco Systems (NASDAQ: CSCO) - Analysis and Update
• Edison International (NYSE: EIX) - Analysis
• Home Depot (NYSE: HD) - Analysis
• Intel (NASDAQ: INTC) - Analysis and Update
• King Pharmaceuticals (NYSE: KG) - Analysis
• Microsoft (NASDAQ: MSFT) - Analysis
• Nokia (NYSE: NOK) - Analysis
• Nortel Networks (OTC: NRTLQ) - Analysis
• NVIDIA (NASDAQ: NVDA) - Analysis and Update
• Paragon Shipping (NASDAQ: PRGN) - Analysis
• PepsiCo (NYSE: PEP) - Analysis and Update
• Tidewater (NYSE: TDW) - Analysis
• Wal-Mart (NYSE: WMT) - Analysis
• Watson Pharmaceuticals (NYSE: WPI) - Analysis

When HD and WMT file their 10-Q reports, we will close out the quarter for good.

The following table summarizes the gauges and the changes to the scores during the first quarter:

Company	Overall_Gauge and change (100 = max)	Strongest Gauge and score (25=max)	Weakest Gauge and score (25=max)	Gauge Rising the Most	Gauge Falling the Most
ADP	59(-4)	Value(17)	Cash Mgt (10)	Value(+1)	Growth(-4)
BP	53(-12)	Value(20)	Profitability(7)	None	Growth(-10)
Broadridge	32(-28)	Profitability(15)	Value(1)	Growth(+3)	Value(-16)
Cisco	54(-17)	Value(15)	Growth(0)	None	Value(-8)
ConocoPhillips	45(-1.5)	Value(12)	Profitability(9)	Value(+1)	Growth(-2.5)
Edison Int'l	34(+3)	Value(17)	Growth(2)	Value(+1)	Growth(-1)
Home Depot	23 (-11)	Cash Mgt (7)	Growth(0)	Cash Mgt(+2)	Value(-6)
Intel	29(-24)	Cash Mgt (10)	Growth(0)	None	Value(-9)
King Pharma	26(+3)	Value(9)	Growth(0)	Value(+4)	Profitability(-5)
Microsoft	69(-2)	Value(25)	Growth(3)	Cash Mgt(+1)	Growth(-7)
Nokia	42(-1)	Value(17)	Growth(0)	Cash Mgt(+1)	Profitability(-1)
Nortel	N/A	N/A	N/A	N/A	N/A
NVIDIA	20(-11)	Cash Mgt (7)	Growth(0)	None	Value(-6)
PepsiCo	49(-3)	Value(16)	Growth(0)	Cash Mgt(+2)	Profitability(-6)
Paragon	N/A	N/A	N/A	N/A	N/A
Tidewater	64(+6)	Value(25)	Profitability(5)	Cash Mgt(+6)	None
Wal-Mart	38(-6)	Growth(11)	Cash Mgt(9)	Cash Mgt(+2)	Value(-3.5)
Watson Pharma	42(-14)	Profitability(11)	Growth(10)	None	Value(-8)

Before we make a few observations about this table, two cautions (in addition to our normal caveats) need to be emphasized.  This group of companies is not, by a long shot, a representative sample of the market or any segment of the market.  Also, the Value gauge scores were based on share prices at the quarter's end date, which was nearly two months ago in many cases.

Microsoft and Tidewater achieved the highest Overall Gauge scores when the first-quarter results were considered, and both had perfect, rarely seen 25-point Value Gauge scores.  The share prices, by this measure, appear to have fallen disproportionately relative to business fundamentals. 

We see a mixed Value story when looking at the other companies on the list.  The Value gauge had the highest score of the individual gauges for a majority of the firms.  In a few cases, this gauge was the one that gained the most in the first quarter.  However, we also have many cases where the Value gauge fell significantly during the first quarter.  Some share-price rebounds off the late 2008 lows could have been a little too robust.

The Growth Gauge was the laggard for many companies, and zero-point scores were all-too common.  Cash Management improved at firms that took steps to raise cash, refinance debt, reduce inventories, or become more efficient in some other way.


Full disclosure: Long all companies mentioned above, with two exceptions.  No position in NRTLQ and WPI at time of writing.

Analysis Changes for Early 2009

In this post, we describe several changes to how GCFR will analyze financial statements and calculate gauge scores. 

These changes are generally minor and are part of our continuing efforts to learn more from corporate financial statements.  Our goal is to identify the factors that will influence the subject company's performance in the future.



1.  We now track Return on Invested Capital, Working Capital/Market Capitalization, and Free Cash Flow/Shareholders' Equity.  The change will be to use Invested Capital as the denominator for each term.

There are many alternative definitions of Invested Capital.  We use the following simple equation.:

Invested Capital is Shareholders' Equity + Debt - Cash - Short-Term Investments

ROIC is, of course, unaffected by the change in denominator.  Working Capital to Invested Capital and Free Cash Flow to Invested Capital are new metrics for us.

We're making this change to facilitate comparisons between income-based ROIC and cash flow-based FCF-to-Invested Capital.


2.  We're going to give more attention to Operating Profit, which we define as Operating Income excluding the effect of special operating charges.  We will determine the average annual rate of change in Operating Profit over the four previous years for each company we follow.


3.  The PEG rate is back by popular request.  PEG is the Price/Earnings Ratio (Price per Share divided by Earnings per Share) divided by the Earnings Growth rate (expressed as a percent).  Instead of the growth in Net Income, we will use the average Operating Profit growth rate mentioned above.

4.  We've adjusted many of the weights to used to calculate the gauge scores.  Our objective is to increase the correlation between the scores and future share price gains.  In many cases, the weight changes will cause previously reported scores to vary up or down by minor amounts.

S&P Humor

GCFR visits the S&P web site every month and downloads a dry-as-dust Excel workbook with earnings data for S&P 500 index.  The data are used in our earnings models.

http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS


We were surprised to see that Howard Silverblatt, S&P Senior Index Analyst, included the following remark in the "Estimates&PEs" worksheet of the current workbook.

"As Reported short-term P/E (column H) higher than the bleachers at Yankee Stadium (old, hope I can still afford ones in the new stadium)"

See:  Financial analysts do have a sense of humor!

A Look at Fourth Quarter Earnings to Date

We are now deep into the period in which public corporations announce the results they achieved during the fourth quarter of 2008.

GCFR has already posted evaluations of the financial statements issued by:

• Automatic Data Processing (NASDAQ: ADP) - GCFR analysis and Update
• BP p.l.c. (NYSE: BP) - GCFR analysis
• Broadridge Financial Solutions (NYSE: BR) - GCFR analysis
• ConocoPhillips (NYSE: COP) - GCFR analysis
• Cisco Systems (NASDAQ: CSCO) - GCFR analysis
• Intel (NASDAQ: INTC) - GCFR analysis
• Microsoft (NASDAQ: MSFT) - GCFR analysis
• Nokia (NYSE: NOK) - GCFR analysis
• NVIDIA (NASDAQ: NVDA) - GCFR analysis
• PepsiCo (NYSE: PEP) - GCFR analysis
• Tidewater Inc. (NYSE: TDW) - GCFR analysis

We use the following table as a scorecard to look for trends in the unscientific sample of companies we follow:

Company	Net Income Compared to Q/E Dec 2007	Net Income Compared to GCFR Estimate	Overall Gauge Score (100 = max)	Gauge Increasing the Most	Gauge Decreasing the Most
ADP	+3.0%	+4.5%	55	None	Cash Mgt
BP	-176%	-165%	65	None	Growth
Broadridge Financial	+3.5%	+9.9%	53	Value	None
Cisco Systems	-27%	-6.9%	62	Value	Profitability
ConocoPhillips	-827%	-1075%	43	Profitability	Growth
Intel	-89.7%	-4.9%	47	Cash Mgt	Growth
Microsoft	-11.3%	-11.7%	68	Value	Growth
Nokia	-68.6%	-58.6%	38	None	Value
NVIDIA	-157%	-76%	25	None	Value
PepsiCo	-43.0%	-50%	47	Value	Growth
Tidewater	+30.9%	+33.9%	56	Value	None

Companies in varied industries added big charges onto weak operating results to produce huge losses that we failed to forecast. Tidewater has been, to date, the best surprise of the quarter. It seems ironic, given current circumstances in its industry, that Broadridge Financial was also better than expected.

It's an indicator of the times that none of the gauge scores increased for several companies and that the contrarian Value gauge was the one most like to move up significantly.

Similarly, it's no surprise that the Growth gauge is the one most likely to have taken a tumble.


Of the many companies that will report earnings during the week of 16 February 2009, we have posted "look-aheads" for Wal-Mart Stores, Inc. (NYSE: WMT) - Look Ahead (revised after earnings warning) and Watson Pharmaceuticals (NYSE: WPI) - Look Ahead. When these firms announces their actual results, we will compare them to our baselines and update the GCFR gauges.

Service Company Analysis (and Web Site Load Times)

We received a question from a reader:

How can I apply the gauges described here for a pure service company or an IT (non product) company - let's say Infosys or (in)famous Satyam.

With service companies, "Inventory" is not the meaningful parameter it is for manufacturers, and this reduces the information available to the Cash Management gauge.  By adjusting the weights of the metrics on which this gauge depends, we can still produce a Cash Management score.  However, the gauge is somewhat less insightful.

The other gauges apply equally to manufacturers and service companies.  No adjustments are necessary.

Compared to manufacturers, service companies tend to have a greater ratio of intangible assets to total assets.  Much of the assets are the skills of the people, the company's processes, and its relationships with customers.  If the company runs into trouble, these are harder to monetize than a factory full of equipment or a warehouse stuffed with inventory.

Brand-name pharmaceutical firms are similar in this respect.  They depend on smart researchers and valuable patents.  The researchers can leave for competitors and the patents expire or can be challenged in court.

We don't presently distinguish between tangible and intangible assets in computing a gauge scores, but we will investigate how we might do so.  Any suggestions?

-----

The same reader commented that the embedded spreadsheets, while useful, slow down the loading of the web site.  Thanks for the feedback -- this concerns us greatly.  We suspect the greater culprit are the embedded charts showing share prices over time.  The spreadsheets, hosted at zoho.com, seem more speedy.  We will cut out the price charts for the time being.  Please let us know if this makes a difference or if you believe the spreadsheets are in fact the problem. 

Best 25 Financial Blogs

Time Magazine has published a list of the 25 best financial blogs.  Congratulations to the honorees, all of which are excellent.

We already read several of the top blogs daily, and many of the sites are probably familiar to frequent GCFR visitors.  Nevertheless, we suspect most readers will find several new items to add to the "favorites" list of their browser or RSS reader.

No, GCFR didn't make the cut, but we are anxiously waiting for a Top 2500 list to come out ;-)

We can report proudly that a few of the honored blogs link to GCFR.  Footnoted.org, which is on the new list, gave us encouragement when we were starting out.  We are very grateful for the guidance and kindnesses we've received from various financial bloggers.

A Last Look at The Third Quarter

Investors don't have too many more third-quarter earnings reports to wade through, but data from some big retailers and a few other firms will get attention.

Well-known companies scheduled to report earnings during the week of 17 November include:

Barnes & Noble (NYSE: BKS), BJ's Wholesale Club (NYSE: BJ), Dell (NASDAQ: DELL), Gap Inc (NYSE: GPS), HJ Heinz (NYSE: HNZ), Home Depot (NYSE: HD), Imclone (NASDAQ: IMCL), Intuit (NASDAQ: INTU), Lowe's (NYSE: LOW), Medtronic (NYSE: MDT), and Target (NYSE: TGT).

We previously posted an earnings "look-ahead" for The Home Depot, Inc..  When this firm announces its actual results, we will compare the Income Statement with our baseline and update the GCFR gauges.

GCFR evaluations are already available for the third-quarter financial statements issued by:

• Anheuser-Busch (NYSE:BUD) - GCFR analysis
  
• Automatic Data Processing (NYSE: ADP) - GCFR analysis
  
• BP p.l.c. (NYSE: BP)  - GCFR analysis 
• Broadridge Financial Solutions (NYSE: BR)  - GCFR analysis
  
• ConocoPhillips (NYSE: COP) - GCFR analysis and update
  
• Cisco Systems (NASDAQ: CSCO) - GCFR analysis
  
• Edison International (NYSE: EIX)  - GCFR analysis
  
• Intel (NASDAQ: INTC) - GCFR analysis and update   
• King Pharmaceuticals (NYSE: KG) - GCFR analysis
  
• Microsoft (NASDAQ: MSFT) - GCFR analysis
• Nokia (NYSE: NOK) - GCFR analysis
• Nortel Networks (NYSE: NT) - GCFR analysis 
• NVIDIA (NASDAQ: NVDA) - GCFR analysis
  
• Paragon Shipping, Inc., (NASDAQ: PRGN) - GCFR analysis
  
• PepsiCo (NYSE: PEP) - GCFR analysis
• Tidewater Inc. (NYSE: TDW) - GCFR analysis
• Wal-Mart Stores, Inc. (NYSE: WMT) - GCFR analysis
  
• Watson Pharmaceuticals (NYSE: WPI) - GCFR analysis and Update
  

The following is an update to the scorecard we use to look for trends in the tiny, unscientific selection of earnings reports we are able to analyze.

Company	Net Income Compared to Q/E Sept 2007	Net Income Compared to GCFR Estimate	Overall Gauge Score (100 = max)	Gauge Increasing the Most	Gauge Decreasing the Most
Anheuser Busch	-5.7%	N/A	24	Profitability	None
ADP	+15.6%	+2.6%	63	Cash Mgt	None
BP	+83%	-2.2%	78	Value	None
Broadridge Financial	-1.1%	+5.0%	44	Value	Profitability
Cisco Systems	0%	+5.8%	64	Value	Growth
ConocoPhillips	+41%	+0.6%	48	Value	Profitability
Edison International	-6.9%	-17.5%	22	Value	Growth
Intel	+12.5%	+0.9%	62	Value	Growth
King Pharma	N/A	+60%	68	Value	Cash Mgt
Microsoft	+2.0%	-0.4%	57	Cash Mgt	Growth
Nokia	-30%	+15%	51	Value	Profitability
Nortel	N/A	N/A	35	N/A	Profitability
NVIDIA	-74%	N/A	55	None	Profitability
Paragon Shipping	N/A	N/A	N/A	N/A	N/A
PepsiCo	-9.6%	-9.8%	30	None	Value
Tidewater	+10.4%	-1.0%	34	Value	Profitability
Wal-Mart	+6.6%	+1.4%	27	None	Growth
Watson	+105% (*)	+39% (*)	53	Profitability	Cash Mgt

(*) includes income was related to the sale of the Somerset joint venture to Mylan Labs (NYSE: MYL).


With stocks battered so brutally, it's no surprise that the contrarian Value Gauge is the one increasing the most, while Growth and Profitability are flagging.

The GCFR standard practice is to compute the Value gauge using the share price at the end of the subject quarter.  Because share prices have dropped substantially recently, we recomputed a few Value gauge scores using current prices and saw significant score increases.  Shares have become much less expensive.

It's now time to establish expectations for the fourth quarter, which will be difficult given the discontinuities in the marketplace.  First up for us will be Intel, Microsoft, and Nokia.  Intel (see this) and Nokia (see this) have already lowered their guidance.

Wrapping Up the Third Quarter Earnings Season

The flood of third-quarter earnings reports has crested, but the coming week will still provide some interesting data to digest.  Many of the reports will be issued by companies, such as retailers, that have fiscal quarters ending on 31 October.

Well-known companies scheduled to report earnings during the week of 10 November include:

Agilent Technologies (NYSE: A), American International Group (NYSE: AIG), Computer Sciences Corp. (NYSE: CSC), JC Penney (NYSE: JCP), Liz Claiborne (NYSE: LIZ), Macy's (NYSE: M), Nordstrom (NYSE: JWN), Nortel (NYSE: NT) [Look Ahead], Paragon Shipping (NASDAQ: PRGN), Sempra Energy (NYSE: SRE), Starbucks (NASDAQ: SBUX), Thomson Reuters (NYSE: TRI), Tyco International (NYSE: TYC), Wal-Mart  (NYSE: WMT) [Look Ahead]

We previously posted "look-aheads" for the two companies highlighted above.  When these firms release actual earnings, we will compare each Income Statement with our baseline and update the GCFR gauges.

GCFR evaluations are already available for the third-quarter financial statements issued by:

• Automatic Data Processing (NYSE: ADP) - GCFR analysis
  
• BP p.l.c. (NYSE: BP)  - GCFR analysis 
• Broadridge Financial Solutions (NYSE: BR)  - GCFR analysis
  
• ConocoPhillips (NYSE: COP) - GCFR analysis and update
  
• Cisco Systems (NASDAQ: CSCO) - GCFR analysis
  
• Edison International (NYSE: EIX)  - GCFR analysis
  
• Intel (NASDAQ: INTC) - GCFR analysis and update   
• King Pharmaceuticals (NYSE: KG) - GCFR analysis
  
• Microsoft (NASDAQ: MSFT) - GCFR analysis
• Nokia (NYSE: NOK) - GCFR analysis
• PepsiCo (NYSE: PEP) - GCFR analysis
• Tidewater Inc. (NYSE: TDW) - GCFR analysis
  
• Watson Pharmaceuticals (NYSE: WPI) - GCFR analysis and Update
  

The following is an update to the scorecard we use to look for trends in the tiny, unscientific selection of earnings reports we are able to analyze.

Company	Net Income Compared to Q/E Sept 2007	Net Income Compared to GCFR Estimate	Overall Gauge Score (100 = max)	Gauge Increasing the Most	Gauge Decreasing the Most
ADP	+15.6%	+2.6%	63	Cash Mgt	None
BP	+83%	-2.2%	78	Value	None
Broadridge Financial	-1.1%	+5.0%	44	Value	Profitability
Cisco Systems	0%	+5.8%	64	Value	Growth
ConocoPhillips	+41%	+0.6%	48	Value	Profitability
Edison International	-6.9%	-17.5%	22	Value	Growth
Intel	+12.5%	+0.9%	62	Value	Growth
King Pharma	N/A	+60%	68	Value	Cash Mgt
Microsoft	+2.0%	-0.4%	57	Cash Mgt	Growth
Nokia	-30%	+15%	51	Value	Profitability
PepsiCo	-9.6%	-9.8%	30	None	Value
Tidewater	+10.4%	-1.0%	34	Value	Profitability
Watson	+105% (*)	+39% (*)	53	Profitability	Cash Mgt

(*) includes income was related to the sale of the Somerset joint venture to Mylan Labs (NYSE: MYL).


With stocks battered so brutally, it's no surprise that the contrarian Value Gauge is the one moving up, while Growth and Profitability are suffering.

The GCFR standard practice is to compute the Value gauge using the share price at the end of the subject quarter.  As everyone knows, share prices dropped substantially for almost every company traded during October.  We recomputed a few Value gauge scores using October's closing prices and saw significant score increases.  Overall scores would rise by 5 to 15 points using the latest, weaker prices.

This tells us the shares are inexpensive, in some cases significantly so, by historic (admittedly backward-looking) measures.  Alas, cheap stocks can certainly become cheaper.

Flood of Quarterly Earnings Reports to Crest

The flood of earnings reports for the July-August-September quarter is about to crest, and much new data to digest will be published during the coming week. We will also start to see reports from companies having fiscal quarter extending into October.

Well-known companies scheduled to report earnings during the week of 3 November include:

Anheuser-Busch (NYSE: BUD), Archer-Daniels Midland (NYSE: ADM), Automatic Data Processing, Inc. (NYSE: ADP) look-ahead, Blackstone Group (NYSE: BX), Broadridge Financial Solutions, Inc. (NYSE: BR) look-ahead, Cisco Systems, Inc. (NASDAQ: CSCO) look-ahead, DirecTV (NYSE: DTV), Duke Energy (NYSE: DUK), Edison International (NYSE: EIX) look-ahead, Ford Motor (NYSE: F), Foster Wheeler (NASDAQ: FWLT), General Motors (NYSE: GM), Goodyear Tire & Rubber (NYSE: GT), Healthsouth (NYSE: HLS), King Pharmaceuticals, Inc. (NYSE: KG) look-ahead, MasterCard (NYSE: MA), NVIDIA (NASDAQ: NVDA), PG&E (NYSE: PCG), Sunoco (NYSE: SUN), Time Warner (NYSE: TWX), Transocean (NYSE: RIG), Qualcomm (NASDAQ: QCOM), Viacom (NYSE: VIA.B), and Walt Disney (NYSE: DIS).

We previously posted third-quarter earnings "look-aheads" for the five companies highlighted above. When these firms release actual earnings, we will compare each Income Statement with our baseline and update the GCFR gauges.

It will probably take us a couple of weeks to complete these evaluations, and we're hoping to make time for examinations of Anheuser-Busch and NVIDIA.


We have already posted evaluations of the financial statements issued by:

• BP p.l.c. (NYSE: BP) - GCFR analysis
  
• ConocoPhillips (NYSE: COP) - GCFR analysis and update
  
• Intel (NASDAQ: INTC) - GCFR analysis and update
  
• Microsoft (NASDAQ: MSFT) - GCFR analysis
• Nokia (NYSE: NOK) - GCFR analysis
• PepsiCo (NYSE: PEP) - GCFR analysis
• Tidewater Inc. (NYSE: TDW) - GCFR analysis
  
• Watson Pharmaceuticals (NYSE: WPI) - GCFR analysis
  

The following is an update to the scorecard we use to look for trends in the tiny, unscientific selection of earnings reports we are able to analyze.

Company	Net Income Compared to Q/E Sept 2007	Net Income Compared to GCFR Estimate	Overall Gauge Score (100 = max)	Gauge Increasing the Most	Gauge Decreasing the Most
BP	+83%	-2.2%	78	Value	None
ConocoPhillips	+41%	+0.6%	48	Value	Profitability
Intel	+12.5%	+0.9%	62	Value	Growth
Microsoft	+2.0%	-0.4%	57	Cash Mgt	Growth
Nokia	-30%	+15%	51	Value	Profitability
PepsiCo	-9.6%	-9.8%	30	None	Value
Tidewater	+10.4%	-1.0%	34	Value	Profitability
Watson	+105% (*)	+39% (*)	53	Profitability	Cash Mgt

(*) includes income was related to the sale of the Somerset joint venture to Mylan Labs (NYSE: MYL).


Net Income was down at the two companies that interact most directly with consumers. We suspect the fourth-quarter version of this table will show a greater number of companies reporting earning declines.

The fact that four of our earnings estimates were within 1 percent of the actual figures is mostly due to dumb luck, but it also suggests these companies hadn't yet suffered significant discontinuities in their operations from the credit crisis and consequent slump in economic activity. The fourth quarter might be very different.

With stocks battered so brutally, it's no surprise that the contrarian Value Gauge is the one moving up, while Growth and Profitability are suffering.

The GCFR standard practice is to compute the Value gauge using the share price at the end of the subject quarter. As everyone knows, share prices dropped substantially for almost every company traded during October. We recomputed a few Value gauge scores using October's closing prices and saw significant score increases. Overall scores would rise by 5 to 15 points using the latest, weaker prices.

This tells us the shares are inexpensive, in some cases significantly so, by historic (admittedly backward-looking) measures. Alas, cheap stocks can certainly become cheaper.