After wrapping up an incredibly strong first quarter of earnings reports, we've dived headfirst into the second quarter, with many reports coming in better than expected thus far. 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:
|Goodyear Tire & Rubber (NYSE: GT )||$0.07||$0.34||386%|
|D.R. Horton (NYSE: DHI )||$0.04||$0.13||225%|
|Six Flags Entertainment (NYSE: SIX )||($1.62)||($2.11)||(30%)|
Source: Yahoo! Finance. Reported EPS excludes certain charges.
Goodyear Tire & Rubber
Goodyear Tire keeps picking the worst possible times to go flat. For the first quarter, Goodyear crushed Wall Street's expectations, but that's if you exclude one-time debt restructuring costs that dragged its $0.34 profit to a $0.05 loss. The company also cautioned that the growth it had been expecting in tire volume simply hasn't materialized as it now expects tire volume to fall by 2% this year. North America was hit especially hard with an 8% drop in tire volume in the first quarter.
Despite all of these negatives, and the fact that Goodyear has trouble maintaining momentum for any length of time, the company did manage to grow sales in North America by 8% despite the volume decline because it was able to pass along higher raw material costs to consumers. We can also attribute some of Goodyear's weakness to the warmer winter, which discouraged consumers from purchasing winter tires. Overall, I think Goodyear will be a fantastic value over the long run, but you shouldn't give too much credence to this quarters' huge adjusted earnings beat.
All in all, homebuilder earnings reports this week sent that sector off to the races. D.R. Horton led off the week by crushing estimates and reporting a 21% increase in homes closed and a 25% increase in its home backlog. Similarly, Meritage Homes (NYSE: MTH ) noted that its sales orders are at their highest levels in nearly three years. Even perpetual underperformer PulteGroup (NYSE: PHM ) managed to eke out a smaller year-over-year loss and recorded a 5% rise in its average selling price. But am I excited about homebuilders? Not one bit!
The data in the sector continues to be far too mixed for me to be anything more than skeptical about the recent rally. Sales of new homes dropped by a staggering 7.1% in March, the worst drop in a year, as warmer weather seems to have again been one factor helping home sales in the previous months. More importantly, the Case-Shiller housing price index hit fresh lows last month, which demonstrates to me that there's little pricing power with homebuilders (despite PulteGroup's 5% rise in average selling price). Finally, I can't say I'm impressed with the influx of debt offerings in the sector. Both D.R. Horton and Meritage have issued new debt in April. It's far too early in the recovery for homebuilders to be spending this aggressively, and I'd be cautious about any investments in homebuilders.
Six Flags Entertainment
I almost did a double take when I read that the 30% wider-than-expected loss of $2.11 per share that Six Flags reported was better than last year! It seems pretty clear to me why this company went bankrupt a few years back: It doesn't have a sustainable growth model.
Six Flags' report did highlight a 1.5% rise in attendance, and the company did charge customers more to use its entertainment parks, which resulted in an 8% rise in sales. But considering how mild this winter was (that's right -- I'm blaming the weather for all three companies this week), Six Flags' results should have been considerably stronger. It's possible that with evidence of consumers trading up to more expensive discretionary items that attendance could improve, but I'm inclined to believe that Six Flags will find itself in a cash crunch yet again within the next five to 10 years. I don't like how easily consumer habits can strangle margins in the amusement park business and am avoiding the stock like the plague.
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 Goodyear Tire & Rubber to My Watchlist.
- Add D.R. Horton to My Watchlist.
- Add Six Flags Entertainment to My Watchlist.
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