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The damage will not be limited to the third quarter, although many companies, like insurers, will take their biggest earnings reduction in this quarter.
Executives of the KeySpan Energy Corporation are being investigated by the Securities and Exchange Commission for trades they made before KeySpan, a natural-gas supplier, disclosed accounting mistakes and a $30 million earnings reduction last July, the company said yesterday.
The accountants are now debating how to account for the transaction, and whether companies that make such gifts to their executives ought to suffer an earnings reduction as a consequence.
Mr. Sherlund did not reduce his quarterly earnings estimate of 41 cents a share because he says the earnings reduction of 2 cents a share from lower revenues will be offset by increased income from Microsoft's sizable investment portfolio.
A negative case could be that the shares are still quite highly rated on a 2015 estimated PE of 16.7 times, given the pattern of earnings reduction in recent years and the lack of organic revenue growth in the first half of 2014.
HealthSouth's stock has plunged 75% since the earnings reduction announcement Aug. 27.
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The remainder of the earnings reductions, totaling $92 million from 1997 through 2000, came from what Enron called "prior year proposed audit adjustments and reclassifications," which appear to have been changes previously recommended by Arthur Andersen, Enron's auditors, but not made because the auditors were persuaded the amounts were immaterial.
17 Couch and Placzek (2010) estimated earnings reductions of more than 30% at the time of job loss and about 12 to 15% 6 years later.
Shares of Citizens Republic Bancorp (6, CRBC) have dropped by two-thirds as investors have grown concerned over the company's earnings reductions and suspension of its dividend.
Gikas reduced his price target on EA to $54 from $59, citing "permanent damage" to shareholder confidence post the company's most recent earnings call, a "flat" E3 trade show, additional earnings reductions, and limited near-term catalysts.
In contrast, previous studies suggest that participants obtain little benefit initially possibly experiencing earnings reductions due to "lock-in" effects—as they engage in training activities that supplant employment.
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