3 Earnings Surprises That Caught My Attention Last Week
Mar 5th 2012 10:01AM
Updated Mar 5th 2012 10:02AM
We're two months into the new year, and surprisingly the majority of earnings reports continue to be better than Wall Street had predicted. With so many companies reporting during the weeks that comprise earnings season each quarter, earnings reports can fall through the cracks.
Each week this year I've taken a look at three companies that could be worth further research after either beating or missing their profit expectations. Today, we're going to take a look at three more companies that reported earnings last week and may have slid under your radar, and that you should give a second look:
|Kenneth Cole Productions (NYS: KCP)||$0.28||$0.49||75%|
|Impax Laboratories (NAS: IPXL)||$0.22||$0.36||64%|
|MDC Partners (NAS: MDCA)||($0.01)||($1.95)||(19,400%)|
Source: Yahoo! Finance.
Almost overnight, name-brand merchandise seems to have become the new darling of consumers. Following very strong earnings results from Michael Kors (NYS: KORS) , which posted profit results that topped Wall Street's estimates by 122% on the heels of 38% same-store sales growth in the United States, Kenneth Cole also pirouetted easily past consensus estimates.
The company, which also received an offer last week from its namesake founder Kenneth Cole to take it private at $15 per share, reversed a year-ago $0.15 quarterly loss and posted an 8% rise in sales. Kenneth Cole's strength came from wholesale revenue, which rose 47%, while direct-to-consumer sales dipped 16% as the company chose to close some of its retail outlets. That strategy stands in stark contrast to True Religion Apparel (NAS: TRLG) , another name-brand retailer that's focusing on its direct-to-consumer segment and relying less on its wholesale division to drive sales growth.
My concern with Kenneth Cole is that its reliance on wholesale revenue puts it at the mercy of larger retailers. If sales begin to slump, Kenneth Cole's revenue could become very unpredictable. Unlike the other name-brand beats, this one didn't get me too excited.
Do you need any more proof that generic-drug makers are going to generate a steady stream of cash flow? Then take a look at Impax, which blew away Wall Street's estimates last week.
For the quarter, Impax grew profits by 76%, while sales jumped 60% from the year-ago period. Front and center to Impax's success was its generic version of Adderall XR, the attention deficit hyperactivity disorder drug. Sales of the drug nearly tripled this quarter to $84.2 million, from just $29.5 million last year.
The advantage generic-drug companies have is in their cost structure. With no lengthy clinical trials needed, these generic companies dramatically cut their costs and, subsequently, patient care costs in the process. Generic-drug makers also have what seems an endless stream of drugs waiting to come off patent. Impax looks like it will be a long-term winner, along with generic rival Teva Pharmaceutical, my leap of faith pick of the litter.
Back in May, MDC Partners found its way onto my "Stocks Worth Selling" list after the company's CEO, Miles Nadal, practically stuck his foot in his mouth, declaring that the company "was off to a great start" despite the 31% to 35% expected decline in cash flow. Last week, Mr. Nadal did it again -- but this time it was a little less obvious.
For the quarter, MDC Partners' loss ballooned to $1.95 per share, reversing a year-ago profit of $0.43. What I found particularly odd about this report is that the company didn't really get into the reasons for its huge loss. It's not that hard to figure it out: Expenses rose 37%, headed by an 81% jump in office and general expenses. Also, thanks to that new round of financing, interest expense was higher than last year. CFO David Doft did make a comment about the company being diligent about its expenses moving forward, but the overall report generally skipped over the huge loss. I suggest you let MDC prove it can live up to its own lofty expectations before you go and back this horse.
Sometimes an earnings beat or miss isn't as cut-and-dried as it appears. I've given my two cents on what's next for each of these companies; now it's your turn to sound off. Share your thoughts in the comments section below and consider adding these stocks to your free and personalized watchlist.
- Add Kenneth Cole Productions to My Watchlist.
- Add Impax Laboratories to My Watchlist.
- Add MDC Partners to My Watchlist.
If you'd like the inside track on three more companies that could wind up in the earnings beat column, then I suggest you get a copy of our latest special report, "3 American Companies Set to Dominate the World." Did I mention the best part? This report is completely free, so don't miss out!
At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He feels there's nothing generic about generic-drug companies. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Teva Pharmaceutical. Motley Fool newsletter services have recommended buying shares of Teva Pharmaceutical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always exceeds expectations.
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