3 Earnings Reports That Caught My Attention Last Week

After wrapping up an incredibly strong first quarter in terms of earnings reports, it's time to dive headfirst into the second quarter. With so many companies reporting during the weeks that comprise earnings season each quarter, 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'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:

Company

Consensus EPS

Reported EPS

Surprise

Alcoa (NYSE: AA  ) ($0.04) $0.10 350%
Rite Aid (NYSE: RAD  ) ($0.14) ($0.18) (29%)
Talbots (NYSE: TLB  ) ($0.56) ($0.52) 7.0%

Source: Yahoo! Finance.

Alcoa
Consider me officially confused after Alcoa's better-than-expected quarterly results. Pretty much everyone, myself included, expected China's demand for aluminum to have tapered off. In January even Alcoa anticipated a drop in China's aluminum demand by curtailing some of its production. Yet these fears simply didn't materialize, and it appears China's need for aluminum is continuing to grow, which paints a much better outlook for Alcoa than many had predicted.

There are still challenges as alumina prices remain depressed. Alcoa plans to cut back its alumina refining capacity by approximately 390,000 tons in order to bring supply closer in line with demand. But overall this was a solidly bullish report, with the strongest growth seen in the automobile and aerospace sectors. I'd hardly say that it is smooth sailing from here on out, but perhaps my near-term negativity surrounding Alcoa was a bit too pessimistic.

Rite Aid
Now here's something that didn't surprise me one bit: another quarterly loss for Rite Aid. Despite same-store sales growth of 3%, which benefited most from strong pharmacy sales, and an 11% rise in overall revenue, Rite Aid still managed to report its 19th consecutive quarterly loss and miss Wall Street's EPS estimates by 29%. Most disturbing was Rite Aid's 150-basis-point gross margin reversal from the year-ago period.

Rite Aid has been attempting to enact its turnaround plans for years, but when push comes to shove, the company can't turn a profit. Some of this has to do with competition from Walgreen (NYSE: WAG  ) and CVS Caremark (NYSE: CVS  ) , which have consistently taken market share from Rite Aid over the past few years.

But the other constraining factor is Rite Aid's $6.3 billion in debt. To show you how convoluted the debt-cycle can be, Rite Aid rallied in February on news that it was retiring $459 million in debt due in 2015 by issuing another $481 million in debt due in 2020. Rating agency Fitch rated this new debt offering at CCC/RR5, i.e., implied high credit risk. It's looking as if Rite Aid's recent run-up was once again unjustified.

Talbots
Talbots shareholders should be thanking their lucky stars that private-equity firm Sycamore Partners made a $3 per share offer for the company in December, because without this offer, Talbots' stock would really be hurting after another dismal quarter. Just to be clear, Talbots snubbed Sycamore's offer as too low.

However, the first whiffs of desperation are finally wafting, as Talbots announced that it would be closing 110 underperforming stores this year, or about 20% of its total locations, on top of the 69 it closed in 2011. Talbots has struggled to adapt to changing consumer trends and has lost some of its core customers to competitors. After many attempts to put the correct merchandise in front of consumers failed and resulted in heavy discounting, the company has officially put itself up for sale. The question is, what company is really going to offer more than Sycamore did with another revenue shortfall being issued by Talbots? I have a suspicion we'll be putting our flags at half-staff for Talbots in the not-too-distant future.

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 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!

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He generally avoids pharmacies at all costs. 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.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 16, 2012, at 11:33 AM, hughjwade wrote:

    Fair enough on the Rite Aid. But shouldn't you have mentioned the one-time LIFO accounting charge, and, without that, they did really good. I mean, it kind of shows that you're buying into and repeating the old song that Rite Aid sucks, but you're not looking at it freshly or insightfully or in detail, which somewhat discredits your stance.

  • Report this Comment On April 16, 2012, at 11:56 AM, bigjimbig wrote:

    LIFO kept the losses for tax purposes running...RAD per IRS regulatons can only post losses for 5 years in a row an then most post profit...it has one more quarter to post a lost.

    This is real real real good creative accounting now 5 years running.

    Your article is very shallow on historical facts and what the management is doing. I could have used FIFO and posted a profit this quarter...but no...

    It also does not mention next year's, CEO projection, of $1.025 billion in proftis...minues 300 mill for new stores or upgrades and should be little or no taxes with all the write offs from years past for years to come.

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