3 Earnings Reports That Caught My Attention Last Week

The first half of 2012 is now in the books, and as we dive into the heart of third-quarter earnings reports, I can't help pointing 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

EnCana (NYSE: ECA  ) $0.19 $0.27 42%
Arctic Cat (Nasdaq: ACAT  ) ($0.08) $0.14 275%
Netflix (Nasdaq: NFLX  ) $0.05 $0.11 120%

Source: Yahoo! Finance.

EnCana
Well, would you look at what wasn't nearly as poor as everyone predicted: earnings from North America's second-largest natural gas producer, EnCana.

For the second quarter, EnCana did report a significant revenue and income drop-off because of lower natural gas price realizations, but there were still plenty of positives to take from the report beyond just the 42% earnings beat. For one, oil and liquids output rose 16.7% to 28,000 barrels per day. This is important, because oil and natural gas liquids pricing has historically held up better and will yield higher margins for EnCana. The company predicts boosting production by another 7% to 30,000 barrels per day in the third quarter and has plans to invest $600 million in an attempt to double this daily output to 60,000-70,000 barrels per day.

EnCana has also been aggressively cutting back on its natural gas production. Earlier this year, it announced a $2.9 billion sale of assets it holds in British Columbia to Mitsubishi in an effort to raise cash and divest some of its reliance on natural gas.

Let's face it, folks: Things aren't nearly as bad on the natural gas front as you might think, and prices have been rebounding lately. It's time to start thinking about those cheap natural gas names again.

Arctic Cat
Count me among the confused! In mid-May, Arctic Cat reported fourth-quarter 2012 results and lowered its fiscal 2013 outlook on expected softness in North American sales. Yet last week, Arctic Cat blew away Wall Street's estimates and reported a surprise profit on strength in North American all-terrain vehicle sales.

Give me a minute here. I'm still scratching my head.

For the quarter, Arctic Cat noted just a 4% increase in snowmobile sales but noted a 93% increase in ATV sales as new products drove growth higher -- literally! The company also boosted its fiscal 2013 forecast, although it's still a bit lower than where it originally sat before the fourth-quarter outlook warning in May.

But I'm still confused. I've been decidedly bearish on Arctic Cat recently because of its overreliance on snowmobiles to derive sales and its pricey valuation. I still prefer Polaris Industries (NYSE: PII  ) ,which has a considerably better balanced portfolio of products that is more seasonally resistant to sales swings. Polaris didn't have the same earnings hiccup that Arctic Cat suffered earlier this year and pays a 2% dividend to boot. Until Arctic Cat provides better consistency, I'm not sold on its growth.

Netflix
The Netflix implosion continues! After shareholders suffered through a sea of gaffes in 2011, Netflix continues to demonstrate that'll it'll do everything it can to take three steps backwards to go two steps forward.

In the second quarter, Netflix reported a surprisingly strong $0.11 profit on a dramatic leap in streaming subscribers. Specifically, its international streaming business saw sales increase to nearly $65 million from just $18.9 million last year. But, as usual, there are far too many concerns here to be excited about Netflix's near-term prospects.

Costs are one major worry for shareholders as the company plans to step up expenses even further (they rose 25% in the latest quarter) as it expands into Europe. Clearly, it's going to be difficult to gain customers in Europe's spending-resistant environment. Second, its DVD business continues to suffer. As content and convenience move online, this move wasn't completely unexpected, but the swiftness of the losses in DVD subscribers is concerning. Finally, Amazon.com (Nasdaq: AMZN  ) seems more than willing to spend its excessive hoard of cash on ensuring that it eats into Netflix's streaming business. Amazon already has inroads in the U.K. and has the cash power to potentially negotiate better content deals than Netflix in the future.

If we've learned anything, it's that earnings season means duck-and-cover for Netflix shareholders.

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 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. 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.

The Motley Fool owns shares of Arctic Cat, Netflix, and Amazon.com. Motley Fool newsletter services have recommended buying shares of Polaris Industries, Netflix, and Amazon.com. 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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