3 Earnings Reports That Caught My Attention Last Week
We're only one week from the end of the first quarter, 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. If they slid under your radar, they deserve a look:
|OMNOVA Solutions (NYS: OMN)||$0.10||$0.22||120%|
|Endeavour Silver (NYS: EXK)||$0.10||($0.03)||(130%)|
|General Mills (NYS: GIS)||$0.56||$0.55||(2%)|
Source: Yahoo! Finance.
OMNOVA definitely gets my vote of Wall Street crushing beat of the week, since it more than doubled Wall Street's expectation of $0.10. There were plenty of positives to take away from the chemical manufacturer's first-quarter results, but one key question mark remains.
For the quarter, OMNOVA reported a modest 1.5% rise in sales but grew its gross margin by 290 basis points, which led to a 44% improvement in net income. At the heart of OMNOVA's improved results were its ability to pass along price increases to its customers and the sale of higher-margin products.
Still, I can't help but be haunted by CEO Kevin McMullen's comments that market demand for his company's products remains soft. Along with this, despite bringing its leverage ratio down to 2.8 from 3.1, OMNOVA still carries a disproportionately large amount of debt that'd make me leery if I were a shareholder. On the whole, this report was positive, but it'd take more than 1.5% sales growth to convince me that OMNOVA is heading in the right direction.
A precious-metals company reported earnings, which can mean only one thing around these parts: Foolish metals hound Christopher Barker was all over it! I tend to agree with Christopher that this was an earnings miss in name only, as the company continues to provide ample evidence of solid long-term price appreciation potential.
For the eighth straight year, Endeavour increased its proven and probable reserves and boosted its silver output over the third quarter by 30%. Another positive, Endeavour's net cash costs remain low. For all of 2011, net cash mining costs were $5.08, which was more than 10% below its targeted costs of $5.70. With net cash costs of $5.50-$6 forecasted in 2012, you can count of Endeavour raking in solid profits with silver prices still trading above $30 per ounce. Personally, I still prefer Silver Wheaton (NYS: SLW) , as its contracts allow it buy silver at even lower fixed-rate costs that are usually in the $4-$5 range, but Endeavour is running as a close second-best choice.
I'm fully aware a 2% miss isn't exactly "news-breaking," but this is a disturbing trend among large food producers. Kellogg (NYS: K) has missed on EPS in two of the past four quarters, while General Mills has missed EPS in two straight quarters. The culprit appears to be food input costs that are rising more quickly than General Mills or Kellogg can pass them along to consumers.
The interesting thing to note here is that restaurants aren't having the same issue. Most are raising their prices, and consumers are willingly paying more for the product and services they receive. General Mills noted that it experienced 10%-11% cost inflation in 2011, which is one of the highest figures I recall seeing in my 13 years of examining financial reports. Over the long term, General Mills should be a safe investment, but the short term could lead to some shareholder indigestion.
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 OMNOVA Solutions to My Watchlist.
- Add Endeavour Silver to My Watchlist.
- Add General Mills to My Watchlist.
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At the time this article was published 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.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.