3 Earnings Reports That Caught My Attention Last Week

As fourth-quarter earnings reports are nearing an end, and with three-quarters of the year already in the books, 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

Adobe Systems

$0.57

$0.61

7%

Dollar General

$0.60

$0.63

5%

Hovnanian

($0.06)

($0.59)

(883%)

Source: Yahoo! Finance.


Adobe Systems
Here is a head-scratcher for the ages! Adobe Systems, best known for its Flash player software, reported market-beating fourth-quarter results on Thursday, but also delivered a fiscal 2013 forecast that wasn't even in the ballpark of what Wall Street was expecting... and the stock rose!

As I noted Friday, Adobe's rise came on the heels of a rosier projection regarding its customers' transition to its Creative Cloud platform. It added 132,000 new subscriptions in the fourth quarter and expects to end 2013 with 1.25 million subscriptions -- nearly quadruple its current tally. Cloud-computing revenue is recurring, which should give Adobe increased earnings visibility, but we're also talking about a transition unlikely to be completed prior to 2015. 

Although I appreciate Adobe's push into the cloud, its fiscal 2013 projection calling for $4.1 billion in revenue and $1.40 in EPS fell a mile short of the $4.47 billion and $2.35 Wall Street was expecting. I know Wall Street wants to look ahead, but you also can't ignore that Adobe's forward P/E jumped from just 15 prior to its earnings report to 27 as of now! I don't know about you, but Adobe's had enough inconsistencies over the years that I've learned never to trust this company at 20-plus times forward earnings. In short, I'm not buying into this bullishness.

Dollar General
In similar fashion to Adobe Systems, Dollar General reported better-than-expected third-quarter results on the heels of a 4% rise in same-store sales figures as consumers continue to grapple with low discretionary income budgets and minimal wage increases. Unfortunately, that wasn't enough to save Dollar General from remaining cautious for the remainder of the year. 

It might seem counterintuitive to think that an environment with highly cost-conscious consumers could be bad for dollar stores like Dollar General, Family Dollar Stores , and Dollar Tree , but that's exactly what we're witnessing and what I anticipated might occur months ago. Dollar stores, just like any other retailer, need customers to step up and purchase higher-margin discretionary items in order to maintain their margins. With fewer higher-margin items being purchased comes the potential for fewer promotional items and the chance that sales could fall flat.

At 13 times forward earnings, much of Dollar General's premium has disappeared with its recent drop, but I still can't say its current valuation enthuses me. For now, I'd consider the dollar store sector a watch-and-wait sector.

Hovnanian
The homebuilding sector may be on the mend, but there always has to be one company in each sector that brings up the caboose -- and for the housing sector, that company is Hovnanian.

Although the top-line loss of $0.59 may look horrible (and it is), most of that has to do with the extinguishment of $87 million in debt, and it actually recorded its first pre-tax quarterly profit since 2006! Also, net contracts jumped 19% while its net backlog rose by an even more robust 29%. Yet, you won't find me jumping on the bullish bandwagon for Hovnanian.

In its fourth-quarter report we also learned that its communities dropped 12% year over year, which is going to make for some very difficult comparisons in fiscal 2013. In addition, Hovnanian is going to struggle with its top-line profitability over the coming two years as it grapples with nearly $1.5 billion in net debt. Personally, I'm not convinced that Hovnanian can return to profitability by 2014 as Wall Street predicts, and I'd be extremely concerned if we go over the fiscal cliff without striking a deal in Congress.

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 want to avoid potential earnings traps like the companies mentioned here, then you should check out our brand-new free report by The Motley Fool's chief investment officer, who has selected his No. 1 stock for the next year: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

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. Motley Fool newsletter services have recommended buying shares of, and creating a diagonal call position in Adobe Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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