News Corp. Revenue Falls Well Short of Forecasts

A steep drop in Australian newspapers took its toll on the company, which publishes The Wall Street Journal and The Times of London. News Corporation said net income attributable to common shareholders was $27 million for the quarter ended Sept. 30, the first of its fiscal year. That compared with a loss of $92 million in the same quarter last year.

Shares of the company fell more than 2 percent in after-hours trading on disappointment over the $2.07 billion revenue figure, which missed a Thomson Reuters forecast for $2.2 billion in revenue.

“The revenue was clearly weaker than expected,” said Doug Arthur, an analyst with Evercore Research.

On an adjusted basis, the company earned $17 million, or 3 cents a share, missing the consensus forecast of 5 cents.

A steep decline in newspapers in Australia, where Mr. Murdoch was born, weighed heavily on the results.

“The weakness of the Australian newspapers was well known, but the sales decline of 22 percent was even worse than I had expected,” Michael Corty, a Morningstar analyst, said.

In July, News Corporation separated its publishing business from its much more lucrative entertainment assets, including its movie studio, cable and television properties, which are now part of 21st Century Fox.

This is the first time that News Corporation, which retained the name and is based in New York, is reporting as a stand-alone company, which includes the book publisher HarperCollins, Australian pay-TV and digital real estate stakes, and Amplify, a fledgling education unit.

Newspapers are facing difficult challenges because advertisers are shunning them in favor of splashier digital properties and readers are canceling print subscriptions.

Saks Losses Rise as Sales Fall Short Of Forecasts

Saks reported a larger-than-expected second-quarter loss on Monday after disappointing sales of shoes and handbags forced it to reduce prices.

Saks, the luxury retailer that agreed last month to be acquired by Hudson’s Bay Company of Canada for $2.4 billion, reported that sales at stores open at least a year rose 1.5 percent, well below the 4.5 percent increase Wall Street analysts had predicted.

Stephen I. Sadove, chief executive of Saks, acknowledged in a statement that “our sales growth was modestly below our expectations.”

Saks is the latest retailer across the price spectrum to report mediocre sales. Last week, Macy’s, Nordstrom, Kohl’s and Wal-Mart Stores all reported lower-than-expected sales.

Overall sales at Saks rose just 0.5 percent to $707.8 million for the quarter.

Gross profit margin fell because Saks had too much inventory of shoes and handbags and cut prices to clear unsold merchandise.

For the quarter that ended Aug. 3, Saks reported a net loss of $19.6 million, or 13 cents a share, compared with a net loss of $12.3 million, or 8 cents a share, a year earlier.

Excluding costs like expenses related to store closings and the Hudson’s Bay deal, Saks lost 10 cents a share, 2 cents more than analysts had expected.

Saks, which is based in New York, had been scheduled to report its earnings on Tuesday. The company did not hold its regular earnings conference call with analysts and investors because of its pending acquisition by Hudson’s Bay, the owner of Lord & Taylor.

Shares of Saks closed little changed at $15.97, down 5 cents or 0.31 percent, and just below the $16 a share in cash that Hudson’s Bay is offering.

Strategies: Rosy Earnings Forecasts, at Least at First

IS the glass half full or half empty? For several thousand analysts who make a living assessing the value of publicly traded stocks, the answer depends on which week it happens to be.

That’s what a study of the Standard & Poor’s 500 earnings cycle by Thomson Reuters/I/B/E/S shows.

The distant future sometimes looks better than the mundane day-to-day of the moment. For stock analysts who crunch numbers to come up with earnings estimates for individual companies, the far horizon is often just one year down the road. And the numbers show that when analysts estimate quarterly earnings a year in advance, they tend to be unrealistically optimistic about the prospects of companies they cover, according to Greg Harrison, the senior research analyst at Thomson Reuters who did the study.

Mr. Harrison’s day job involves compiling consensus earnings estimates for the overall stock market, figures he derives from the collective appraisals published by thousands of individual analysts. Does the market expect earnings for the S.& P. 500-stock index to rise or fall, and by how much? Have companies met expectations for the quarter, or will they disappoint the market? Some of the answers come from the data he gathers each week.

But while doing his work, he noticed a consistent pattern in the numbers, which he describes in a fascinating study of earnings since 2008, titled “Estimates Too High, Low? Check the Calendar.”

Except for several quarters in the Great Recession, he found, early earnings estimates are generally rosy, and become predictably and progressively gloomier as time goes on. As analysts revise estimates downward, it becomes easier for companies to beat the market consensus, creating what Wall Street calls a “positive earnings surprise” roughly two-thirds of the time.

Positive surprises, of course, are good for share prices. Negative surprises are not. And by being optimistic about the long-term future, and relatively pessimistic about immediate results, the quarterly cycle of stock market earnings estimates has the effect of bolstering the market.

Analysts, of course, are encouraged in this practice by corporate executives who routinely issue warnings — “guidance,” in Wall Street parlance — that their companies won’t really meet the analysts’ lofty targets. The analysts respond by lowering their targets.

Typically, Mr. Harrison finds, analysts are most accurate — neither too optimistic nor too pessimistic — about seven weeks before companies actually release earnings.

“That’s when analysts’ estimates and the eventual, real numbers meet,” Mr. Harrison said. But the analysts don’t leave well enough alone. Instead, they keep cutting their forecasts and end up being gloomier than reality warrants. “By the time earnings season actually ends,” he says, “it turns out that the analysts have been too pessimistic — and we end up with a lot of ‘earnings surprises.’ ”

We’re now near the end of the earnings season for the second quarter. Most big companies have already issued their final numbers for the period, and the current pattern fits the overall picture fairly well, Mr. Harrison says.

On July 2, 2012, for example, when he compiled the first market consensus for the second quarter of this year, analysts as a group were projecting great things for stocks one year ahead. They said earnings would grow at the blistering pace of 14.4 percent in the second quarter of 2013.

Reality hasn’t come close to matching that early optimism — but because analysts repeatedly ratcheted their projections downward, earnings reports have been surpassing the relatively pessimistic estimates of recent weeks.

On Friday, with 462 members of the S.& P. 500 reporting, Mr. Harrison found that the actual growth rate so far has been only 4.9 percent. Yet 67 percent of those companies beat the analysts’ estimates, producing positive surprises. How was that possible? Analysts collectively dropped their estimates for the quarter to only 2.9 percent on July 1, when earnings season began. The actual results were much better than that.

The rough pattern held for many major companies. Consider General Motors. On July 2, 2012, analysts covering G.M. estimated that it would have earnings per share of $1.25 in the second quarter of 2013. That July, the estimate of Ryan Brinkman, an analyst at J.P. Morgan, was $1.12. G.M. has “best-in-class leverage to global growth markets, ongoing operational turnaround, and improving product cadence,” he wrote.

G.M. has had problems, however. The company acknowledged that it was doing poorly in Europe. By mid-April, after a report that industrywide sales there had plummeted to a 30-year low, and that G.M.’s Opel brand was lagging, analysts’ estimates fell to 73 cents a share. Mr. Brinkman’s was 72 cents. For all analysts, they stood at 74 cents at the beginning of July and edged up to 75 cents the week of July 12.

But that was still way off the mark. G.M.’s actual earnings, released on July 25, were 84 cents a share. Although earnings declined compared with a year earlier, news coverage generally treated the announcement as a positive surprise.

Mark Bradshaw, an accounting professor at Boston College, says what we are seeing is probably overconfidence by analysts and deft maneuvering by corporate executives, who have leeway in adjusting accounting to improve reported profits and in choosing what information to reveal. “For companies, issuing ‘guidance’ has become an art form,” he said. “The analysts seem to try to do what they can, but they’re often at a loss.”

Aswath Damodaran, a finance professor at New York University, called the earnings season “a Kabuki dance” in which “analysts are trying to forecast; companies are trying on the other side, with accounting choices, to affect those earnings and to lower the forecasts; the companies watch the analysts; the analysts watch the earnings; and it’s all a big game. And it’s a game that the companies generally win.”

Frequent traders scrutinize these rituals, he said, seeking nuance. For them, he said, “it’s not enough now just to beat the earnings forecast. That’s too common. Now, you’ve got to beat the forecast enough — by a big-enough number that it really is a surprise — if you want to stir up the market.”

In his view, most of us would be better off ignoring short-term earnings reports. “None of this matters much to long-term investors,” he said. “It’s the long-term picture that’s important, and that is revealed eventually, even if it isn’t clear now.”

Is the glass half full or half empty? Don’t even try to figure that out during earnings season.

U.S. Economy Grew 1.7% During the 2nd Quarter, Topping Forecasts

The mixed picture facing the country was evident on Wednesday, as the Commerce Department reported that the economy, adjusted for inflation, expanded at a better-than-expected annual rate of 1.7 percent in the April-June quarter, even as inflation-adjusted growth in the first part of the year now appears slower than first thought. In a separate statement after a two-day meeting of policy makers at the Federal Reserve, the central bank said the economy was on a “modest” trajectory but gave no clue as to when it might start tapering back its huge stimulus efforts.

Like economists and traders, as well as the 12 million unemployed Americans looking for work, the Fed is struggling to gauge whether better growth does indeed lie ahead.

Optimists point to improved levels of job creation in recent months, a more robust housing sector and a surging stock market that has lifted the value of investment and retirement accounts for millions of consumers. Pessimists focus on the fact that the estimated economic growth rate of about 1.4 percent so far in 2013 is well below last year’s levels of 2.8 percent, even as automatic cuts in federal spending and higher taxes continue to bite.

There were pockets of strength in Wednesday’s data from the Bureau of Economic Analysis, all of which will be subject to further revision as the Commerce Department gathers more information about the economy. For example, residential fixed investment increased by 13.4 percent, a sign that housing continues to rebound. Personal consumption rose 1.8 percent, as consumers showed some resiliency, especially given the increase in payroll taxes at the beginning of 2013.

Additionally, government experts have introduced the first comprehensive change in four years in how the economy is measured. They revised figures all the way back to 1929, while also restating more recent data to show that the 2007-9 recession was slightly milder than originally estimated and growth in 2012 was a bit better.

Still, economists emphasized that although the economy’s performance in the second quarter was significantly stronger than had been feared — Wall Street experts forecast growth would come in at just under 1 percent — big challenges remain.

“The basic story of a deep recession followed by a lackluster recovery is essentially unchanged,” said Nariman Behravesh, chief economist at IHS. Growth in the current quarter, which wraps up at the end of next month, remains a wild card, he added. IHS and other companies do expect a pickup in the second half of 2013, but more fallout from the fiscal tightening in Washington could still be felt, he cautioned.

“So far the effects have been fairly muted,” Mr. Behravesh said. “We’re puzzling over that.”

Were it not for the federal cuts, growth would have been close to 2 percent in both the first and second quarters, said Steve Blitz, chief economist at ITG Investment Research. But that’s about the best Americans can hope for, he said, at least in 2013.

“I don’t see the economy breaking away from that 2 percent rate for now,” Mr. Blitz said. He is more optimistic about 2014, when he said he thought the annual rate of growth could rise to about 3.5 percent. “The economy will have adjusted to the downshift in federal spending by then, and Europe won’t be decelerating as rapidly, nor will China and Japan,” he said.

The pace at which spending by the federal government is dropping stabilized last quarter. It fell by 1.5 percent, compared with an 8.4 percent decrease in the first quarter of 2013 and a 13.9 percent plunge in the final quarter of 2012.

More clues about the economy’s performance will come on Friday, when the Labor Department reports on monthly job creation and the unemployment rate. Economists estimate the economy created 185,000 jobs in July, according to a Bloomberg survey, a bit below the 195,000 level in June, with the unemployment rate falling to 7.5 percent, from 7.6 percent.

As U.S. Trade Deficit Grows, Some Growth Forecasts Drop

The trade deficit rose to $45 billion in May, up 12.1 percent from $40.1 billion in April, the Commerce Department said on Wednesday. It was the largest trade gap since November.

Exports slipped 0.3 percent to $187.1 billion. Sales of American farm products dropped to their lowest point in more than two years. American exports have been hurt by recessions in many European countries.

Imports rose 1.9 percent to $232.1 billion. Imports of autos and other nonpetroleum products rose widely.

The trade deficit is running at an annual rate of $501.2 billion, 6.3 percent lower than last year’s deficit.

Paul Dales, senior United States economist at Capital Economics, said the larger trade deficit for May indicated that economic growth in the second quarter could be even weaker than the sluggish 1.5 percent annual rate that he had forecast.

Economists at Barclays said the higher deficit led them to downgrade their growth forecast for the second quarter to 1 percent, from 1.6 percent.

The American economy expanded at an annual rate of only 1.8 percent in the first three months of the year.

For May, exports to the European Union were up 6.4 percent. But over the last five months, exports to this region have declined 6.3 percent from the same period in 2012. Europe has been hurt by a prolonged debt crisis, which has led to recessions across the Continent.

The United States trade deficit with China jumped 15.6 percent to $27.9 billion in May. That is close to the monthly high set in November. So far this year, the trade deficit with China, the largest with any country, is running 3 percent higher than last year.

Bucks: Investment Plans and Forecasts Don’t Mix

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Business Briefing | Restaurants: Profit at Darden Slips but Beats Forecasts

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Gary Gutting responds to readers’ theories on whether consciousness can be explained by science.

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Testimony in a stop-and-frisk trial has pointed to disturbing conduct by the police command.

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Euro Watch: Dismal Data and Gloomy Forecasts From Europe

A top European official warned on Friday that the euro area economy would shrink for the second consecutive year and that countries like France and Spain would miss fiscal targets meant to ensure the stability of the common currency. Separately, the European Central Bank announced that the region’s banks planned to repay less than half the expected amount of low-interest loans they took out a year ago. And Moody’s Investors Service downgraded Britain’s government bonds from its top AAA rating.

The economic doldrums could set the stage for ripple effects for the United States, particularly in the financial markets.

“The straight growth channel in Europe is weighing on the U.S. right now, but the more important channel through which the euro area hits the U.S. is in financial markets, and problems that could affect consumer and business sentiment,” said Joseph Lupton, senior global economist at JPMorgan Chase. “Where it becomes a big deal is if there’s some other stress point, if something else flares up in the financial markets.”

Olli Rehn, the European commissioner for economic and monetary affairs, forecast growth across the 27-nation European Union of just 0.1 percent this year and a contraction of 0.3 percent among the 17 countries in the euro zone.

Mr. Rehn’s presentation signaled “another year of falling output and rising unemployment in store in 2013,” said Tom Rogers, a senior economic adviser at Ernst & Young.

Prospects for growth in many parts of the European Union were “very disappointing,” Mr. Rehn acknowledged at a news conference, where he presented a so-called winter economic forecast prepared by his department at the European Commission, the bloc’s administrative arm.

“The ongoing rebalancing of the European economy is continuing to weigh on growth in the short term,” Mr. Rehn said.

Just three months ago, the commission forecast that the euro area economy would grow by 0.1 percent this year, and other officials had talked about a turnaround starting this year.

Mr. Rehn said the European economy should resume expanding in 2014, with growth reaching 1.6 percent across the European Union and 1.4 percent in the euro zone.

In another sign of continued weakness in the financial system, European banks plan to repay less than half the expected amount of low-interest loans they took from the European Central Bank.

The central bank lent more than 1 trillion euros ($1.33 trillion) in two operations in December 2011 and February 2012. The cheap loans provided a life raft for the region’s banking sector, which ran into difficulty during the debt crisis. During the period of uncertainty, banks refused to lend to one another. Late last month, banks paid back 137 billion euros of the loans, more than expected, suggesting that at least some banks were able to raise money on their own.

But on Friday, the central bank said that banks that took the second round of loans planned to return 61 billion euros in the latest repayment, much less than many had expected.

Moody’s downgraded its rating on Britain’s debt to Aa1 from AAA, citing continuing weakness in the country’s medium-term growth outlook and rising debt burden. The rising debt means “a deterioration in the shock-absorption capacity of the government’s balance sheet, which is unlikely to reverse before 2016,” the agency said.

Britain has been cutting spending to pare its deficit but has failed so far to stimulate growth. Its economy expanded 0.9 percent in the third quarter but contracted 0.3 percent in the fourth quarter.

Standard & Poor’s and Fitch Ratings still have AAA ratings on Britain’s debt, though their outlooks are negative.

The move comes after other prominent downgrades. Moody’s lowered France from its top rating in November. Before that, Standard & Poor’s downgraded the United States from AAA in August 2011 and lowered France and Austria in January 2012.

In the euro zone, the European Commission also forecast that unemployment would continue to rise this year, to 12.2 percent, up from 11.4 percent in 2012.

David Jolly contributed reporting from Paris and Catherine Rampell from New York.

Panasonic Forecasts Loss for Year

TOKYO (AP) — Panasonic Corp.'s losses ballooned to 698 billion yen ($8.7 billion) for the fiscal second quarter as sales plunged in flat-panel TVs, laptops and other gadgets, and restructuring costs to turn itself around were proving bigger than initially expected.

The red ink, announced Wednesday, proved far worse than the 105.8 billion yen loss racked up for the July-September period last year.

The Osaka-based maker of Viera TVs and Lumix digital cameras revised its full year forecast from an earlier projection for a 50 billion yen ($625 million) profit to a massive annual loss of 765 billion yen ($9.6 billion).

Panasonic sank into a record loss of 772.2 billion yen ($9.6 billion) for the fiscal year through March 2012 — among the biggest in Japan's manufacturing history.

Its problems are emblematic of the overall Japanese electronics industry. Panasonic's longtime rival Sony Corp. racked up a record annual loss of 457 billion yen ($5.7 billion) in its fourth straight year of red ink. Sony reports fiscal results on Thursday.

Panasonic's quarterly sales sank 12 percent to 1.82 trillion yen ($22.8 billion) as a global slowdown, the falling price of electronics products and competition from cheaper Asian makers chipped away at sales. Sales in Japan dipped 11 percent, while overseas sales shrank 14 percent.

Panasonic has been trying to expand operations that cater to other businesses, instead of consumers, by beefing up its solar panel and battery divisions, including auto batteries.

But such shifts are expected to take some time, and those sectors have also been slammed by price declines.

Panasonic lowered its sales forecast for the full year through March 2013, to 7.3 trillion yen ($91.3 billion), down from an earlier 8.1 trillion yen ($101 billion). Even the more pessimistic number falls short of last year's sales at 7.85 trillion yen.

The company also said it expects to book restructuring expenses of 440 billion yen ($5.5 billion) for the year, bigger than the originally estimated 41 billion yen ($513 million).

Panasonic and other Japanese makers have struggled despite the popularity of smartphones and other mobile devices as the market, including Japan, has been dominated by Apple Inc. of the U.S. and South Korea's Samsung Electronics Co.

Also Wednesday, Panasonic said it will boost the efficiency of its operations by merging three group companies focusing on mobile phones and network systems.

During the first fiscal half, Panasonic's sales grew in appliances and automotive systems, but declined in TVs, digital cameras, Blu-ray recorders, mobile phones, printers and semiconductors, according to the company.

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Today's Economist: Partisan Bias and Economic Forecasts

There is a well-known tendency in sports for referees to tilt their calls in favor of the home team. The same thing happens in other areas of life as well, such as economic forecasting. This week’s Economist magazine, for example, notes sharp differences in the current outlook between Republican and Democratic economists.

Perspectives from expert contributors.

Economists belonging to a particular political party often produce forecasts that tend to suit the needs of their party. This is especially evident right now in the case of Republican economists, who appear to have decided that the best way they can help Mitt Romney is by predicting a recession next year.

I first noticed this trend on Sept. 27, when the former Reuters and U.S. News columnist James Pethokoukis, now employed by the conservative American Enterprise Institute, said that the United States economy was “running out of steam” and that there was now a 50 percent chance of a recession within a year. “It may be several years before we see unemployment below 8 percent,” he said in a post on the A.E.I. Web site.

On Friday, the Bureau of Labor Statistics announced that the unemployment rate in September was 7.8 percent.

On Sept. 29, the former Bear Stearns economist David Malpass, who ran for the Republican nomination for the United States Senate from New York in 2010, took a similarly bearish view in an article on The Wall Street Journal’s editorial page. Current economic data, he said, “point to a recession in 2013.”

On Oct. 1, Brian Wesbury, formerly an economist on the Republican staff of the Joint Economic Committee of Congress (as was I in the early 1980s) and now chief economist for First Trust, raised the risk of a recession to 25 percent in his weekly client letter, saying, “the odds of a downturn are no longer very slim.” He attributed the rising recession risk to “uncertainty,” which is the principal explanation for slow growth offered by Mr. Romney’s economic advisers in an Aug. 7 white paper.

Also on Oct. 1, the Forbes columnist Charles Kadlec said, “The U.S. economy has now slipped into a growth recession,” adding, “The economy is on a downward trajectory.” Steve Forbes, the chairman and editor in chief of Forbes Media, ran for the Republican presidential nomination in 1996 and 2000.

The former U.S. Chamber of Commerce chief economist Richard Rahn, an adviser to the George H.W. Bush campaign in 1988, jumped on the recession bandwagon in a column on Oct. 1 for the right-wing Washington Times. It is “almost a certainty,” he said, if Barack Obama is re-elected, “unemployment will not fall, many more businesses will downsize or go bankrupt” and “the economy will stagnate.”

I can’t say for certain that these economists are wrong, but it is worth noting that both Mr. Malpass and Mr. Wesbury take part in The Wall Street Journal’s survey of economic forecasters. In July, Mr. Malpass was predicting 2 percent real gross domestic product growth in 2012 and 3 percent in both 2013 and 2014. Mr. Wesbury was predicting 2.4 percent real growth in 2012, 3.4 percent in 2013 and 3.5 percent in 2014. As recently as The Journal’s September survey, Mr. Wesbury was predicting 2.3 percent real growth in 2012, 2.9 percent in 2013 and 3 percent in 2014. Mr. Malpass did not take part.

The average forecast for all economists surveyed by The Journal in September was 1.9 percent real G.D.P. growth in 2012, 2.4 percent in 2013 and 2.9 percent in 2014. These numbers are similar to those in the latest survey of professional forecasters by the Federal Reserve Bank of Philadelphia in August. It reported the median estimate for real G.D.P. growth in 2012 as 2.2 percent, 2.1 percent in 2013 and 2.7 percent in 2014.

None of the economists surveyed has predicted even a single quarter of negative real growth within the forecast window. Typically, a recession requires two back-to-back quarters of negative real growth.

In an Oct. 1 blog post, the University of Wisconsin economist Menzie Chinn pointed out that two of the economists cited above were well off the mark in our last presidential election year. He pointed to a June 16, 2008, Pethokoukis column in which he was adamant that the United States was not going into a recession. Mr. Pethokoukis quoted Mr. Malpass for support.

I would further note that on Jan. 28, 2008, Mr. Wesbury published an article on The Wall Street Journal’s editorial page pooh-poohing the idea that a recession was anywhere on the horizon. He thought it highly unlikely that a financial crisis could set off a severe downturn in the real economy.

The financial system “is not as fragile as many pundits suggest,” Mr. Wesbury wrote. The “current red alert about a crashing house of cards looks like another false alarm.” He concluded by saying, “Dow 15,000 looks much more likely than Dow 10,000.” That day, the Dow closed at 12,384. It hit a low of 6,547 a little over a year later on March 9, 2009, and has yet to reach 15,000.

Of course, the George W. Bush administration’s party line in 2008 was that there was no recession on its watch. Edward Lazear, chairman of the Council of Economic Advisers, said on May 7, 2008: “The data are pretty clear that we are not in a recession.” In its mid-session budget review on July 30, 2008, the Bush administration predicted real growth of 1.6 percent in 2008 and 2.2 percent in 2009. Actual growth was negative in both years.

According to the National Bureau of Economic Research, official arbiter of recession dates, a recession in fact began in December 2007 and lasted through June 2009. Thus we were already into a recession when Messrs. Lazear, Wesbury, Pethokoukis and Malpass said that none was anywhere in sight.

I don’t mean to pick on these particular economists for having made a really bad call in 2008. They were hardly alone. But I do believe that bias toward what was best for their party, the Republican Party, unquestionably contributed to their forecast errors. I suggest that partisan bias may be a factor in their forecast of an impending recession now. Time will tell.