It is human nature to find something, or someone, on which to blame our problems.
Companies aren't immune to this trait and investors should be cautious when management makes excuses.
Analysts joke about the bad-weather excuse used by many CEOs. When sales are bad, many companies will blame it on stormy weather, like a winter with above average amounts of snow. Sometimes the excuses are legitimate.
If stores close because there are many large snow storms one winter, it likely will curb sales.
On the economic front, many experts warned that the decent job numbers we saw earlier this year were due to the mild winter. They warned that the trend was temporary and job numbers would get worse as the year went on.
Unfortunately, they were right.
However, CEOs and top management are known to exaggerate the weather effect. It is an anomaly to hear management state that sales were helped by good weather; they only mention weather when things are bad.
As the euro crisis gets more severe and has now spread in full force to Spain, I have noticed many companies blaming Europe for their poor earnings results.
With earnings season in full swing, most companies have reported better-than-expected numbers, some companies have posted disappointing results.
While they have different reasons, many of them say figures were off because of "Europe."
Earlier this week, Fossil reported earnings that disappointed analysts and sent the stock plunging 40 percent in one day. The company "blamed its pessimistic outlook on its European business."
In April, Exxon Mobil announced earnings of $2.00 per share, coming in below analysts' estimates of $2.11.
Exxon Mobil stated that "Globally, growth slowed in the first quarter… The U.S. and Japanese economies are also expected to show declines from fourth-quarter levels." They also made sure to mention Europe specifically as a source of week sales.
Dow Chemical reported last month that its first quarter earnings tanked.
Why? Yes, there's a pattern here: it was partially due to a $360 million charge due to plant closures as a result of poor economic conditions in Europe.
These are just a few of the many examples I have seen company’s use for poor first quarter earnings. CEOs will almost never admit they made mistakes, they are doing things wrong etc. they are always looking for an excuse for failures.
This is a very important lesson for investors — when companies try to blame their problems on certain factors, it should be taken with a large grain of salt.
© 2014 Moneynews. All rights reserved.