The first half of 2012 is now in the books, and as we dive into the heart of third-quarter earnings reports, I can't help but point out that the majority of reports up until now have been better than expected. With so many companies reporting during the weeks that comprise earnings season, it's easy for some earnings reports to 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'll take a gander at three more companies that reported earnings last week. They may have slid under your radar, but they deserve a look:

Company

Consensus EPS

Reported EPS

Surprise

PriceSmart (NAS: PSMT) $0.59 $0.52 (12%)
SUPERVALU (NYS: SVU) $0.38 $0.19 (50%)
Progressive (NYS: PGR) $0.27 $0.20 (26%)

Source: Yahoo! Finance.


Although it may look like a disastrous week given these three earnings misses, all three companies have drastically different outlooks.

PriceSmart
As my Fool colleague Brian Stoffel noted last week, PriceSmart has had a very up-and-down year. Dubbed the "Costco (NAS: COST) of Latin America" by the Fool's own chief investment officer, this company has excercised its international prowess and used some of Wal-Mart's own medicine against it in Latin America. PriceSmart has turned to higher discounting in order to undercut competitors' prices.

This strategy has shown to be very effective at increasing membership and return customers, but has the temporary effect of shrinking margins. We've seen evidence of this over the past year as PriceSmart has missed Wall Street's earnings in four straight quarters. But with those shrinking margins have come double-digit increases in revenue and membership.

Personally, I find the PriceSmart story intriguing, but I continue to have a hard time wrapping my head around its pricey valuation. I understand that Costco isn't growing at anywhere near the same rate as PriceSmart and that it has zero international presence, but there's a stability to Costco because of its size that PriceSmart just doesn't have yet, as it's trying to entrench itself into a niche in Latin America and San Diego. Until PriceSmart is beating Wall Street's expectations again, I'd just as soon wait this one out on the sidelines.

SUPERVALU
Now if there was a disaster of the week, the award goes to SUPERVALU, hands down! Call the fire department, get out the caution tape, and hide the women and children, because things are going downhill in a hurry.

For the quarter, SUPERVALU recorded a 4.5% drop in revenue as competitors undercut its prices and consumers continued to tighten their grip on their wallets. This translated into a gross margin contraction and reported earnings that were half of what Wall Street expected.

But the real concern with SUPERVALU is its exorbitant debt levels. After failing to gain ground on any of its peers, SUPERVALU has turned to cost-cutting and store remodels to drive growth and return customers. The problem with remodeling its stores, though, is that it requires cash -- cash that it should be using to pay down debt instead of remodeling its stores. As of the end of the first quarter, SUPERVALU is sporting just $151 million in cash with $6 billion in debt. It also suspended its dividend indefinitely.

I sounded the alarm on SUPERVALU almost a year ago and continue to feel that even with the company considering putting itself up for sale, it's heading down the wrong path.

Progressive
Flo would be so disappointed if she were here right now.

Progressive, the nation's fourth-largest auto insurance company, broadly missed Wall Street's estimates last week as higher claim costs and a rising combined ratio constrained margins. Progressive's CEO, Glenn Renwick, noted a rise in high-cost medical claims as one main reason the combined ratio rose. He also pointed out that a rise in new car sales and the rising price of used cars could have had an effect.

Renwick's plan to improve efficiency is to utilize Progressive's Snapshot technology, which collects driver data to give drivers with the best habits the lowest rates (therefore retaining its high-margin customers), and further promoting its Internet direct operations. Both Progressive and Berkshire Hathaway (NYS: BRK.B) -owned Geico have seen a surge in Internet-based insurance purchases as people choose convenience above all else.

The thing to remember with insurers is that no matter how bad of a quarter or year they may have, they're all very good at adapting. Progressive's investment portfolio may be down year over year and its combined ratio is higher, but negative trends rarely last in the insurance industry. I'd suggest looking at this weakness as a potential buying opportunity.

Foolish roundup
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.

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 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!

The article 3 Earnings Reports That Caught My Attention Last Week originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. 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 Costco, SUPERVALU, and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of PriceSmart, Costco, and Berkshire Hathaway, as well as creating a bull call spread in Wal-Mart and buying calls on SUPERVALU. 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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Introduction to Value Investing

Are you the next Warren Buffett?

View Course »

Professional Vs Do it Yourself Investing

Should you get advice or DYI?

View Course »

Add a Comment

*0 / 3000 Character Maximum

1 Comment

Filter by:
jnuke1

Progressive has done nothing since former engineer and now CEO Renwick has taken over. Time for the board to take notice.

July 18 2012 at 9:07 PM Report abuse rate up rate down Reply