3Q Earnings Season Begins - Investors Beware of the Blame Game!

With the third-quarter earnings season kicking into gear next week, the blame-it-on-the-rain excuses are starting to pile up across corporate America. It's a challenge for investors to sort out fact from fiction in those reasons. When Hurricane Katrina hit the Gulf Coast, women across the country crimped their cosmetics spending. Or at least that's what companies like Avon Products Inc. and Estee Lauder Co. want investors to think. Katrina also caused mattress sales to slide, according to Tempur-Pedic International Inc. The same goes for business at Books-A-Million Inc. stores and Diebold Inc.'s automatic teller machines. There is no doubt that many companies were hard hit by Hurricane Katrina, and in some cases, Rita, too. Given the size of those storms and the paralysis of business along the Gulf Coast, there will certainly be some legitimate costs for business there.
Insurance companies are getting clobbered, as is any business that used New Orleans as a major port. Many retailers with large operations along that coast have also seen significant damage to their stores.
But many excuses lately seem murky, and more are expected as companies report their quarterly results in the coming weeks. Are the storms really hurting business or are they being used to divert attention from more serious problems?
Investors need to be on the lookout for excuses that might seem a little too far-fetched for comfort.