October 26, 2010
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of specialty materials and chemicals manufacturer Ferro Corp. (NYSE: FOE ) were up 10% in intraday trading as investors reacted to the company's third-quarter earnings report.
So What: While few businesses can truly shrug off the impact of a recession, highly cyclical chemicals and materials manufacturers tend to take a particularly tough gut-shot during downturns. Of course that also means that they often see profits surge when recovery sets in. For Ferro, the third quarter suggested that things are moving in the right direction. Total sales were up 20% year-over-year, while gross profit was up an even stronger 29%.
Now What: Ferro has been limping along for a while, reporting losses as it absorbed costs from restructuring and goodwill impairments. After years of reporting margins that trailed other chemicals and materials manufacturers like RPM International (NYSE: RPM ) and Cytec (NYSE: CYT ) , the hope would be that a more cost-efficient company can bring more sales dollars to the bottom line. If the company can hold onto better margins and get a bit of a tailwind from the global economic recovery, it may just be the right time in the cycle to be looking at Ferro's stock.
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