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

CBS (NYSE: CBS  ) $0.59 $0.65 10%
Blue Nile (Nasdaq: NILE  ) $0.07 $0.11 57%
Kenneth Cole Productions (NYSE: KCP  ) $0.06 ($0.03) (150%)
Source: Yahoo! Finance.


CBS
Broadcasting companies are in for the perfect storm of profitability over the next few months. A step up in advertising, directly related to U.S. elections, means added sponsorships and more bottom-line profits for broadcasters, including CBS.

If you didn’t catch the round-up from CBS’ second-quarter report, here’s the skinny: Although advertising revenue actually fell 3%, net income rose by 8%. Most of the drop was due to timing issues. In the year-ago period, CBS had a TV-licensing deal in place with Netflix (Nasdaq: NFLX  ) that boosted revenue and recognized NCAA March Madness revenue into the second-quarter; that didn’t happen this time around. What’s important to note is that fee-based revenue for carrying CBS network programming rose 8%, to $465 million. Fee-based revenue has considerably higher margins than standard advertising revenue, so that’s another great sign. The earnings beat also marked CBS’ ninth-straight beat of Wall Street’s EPS estimates.

Many pundits are worried that the ad market might be weakening, but I feel political ad revenue and fee-based licensing will be a near-term boon for CBS and its shareholders.

Blue Nile
Everybody just calm down for a moment before somebody gets hurt! Blue Nile reported second-quarter results on Thursday that simply met the mark set by the company earlier in the year, and shares skyrocketed higher by 35%. For the quarter, net income fell 43%, despite a 13% rise in revenue, signaling continued margin pressures. However, for the remainder of the year, Blue Nile forecast revenue to range between $384 million to $417 million, with profits of $0.70-$0.85. Wall Street had, on average, predicted full-year earnings of $0.67 on sales of $391.4 million.

As for me, I’m not impressed one bit. The company noted that it’s beginning to see diamond prices weaken, which is aiding engagement ring sales. This is true, as diamond prices are down about 5% since peaking in February, but continued margin pressures aren’t doing a darn thing for Blue Nile. The company must still deal with metal costs, labor input costs, and the battle of getting consumers to open their wallets to higher-priced items. With many mall-based retailers front-running Blue Nile’s at-market-price diamond purchases over the past few months, they can offer deals that are equally as attractive as the online diamond retailer can.

Blue Nile received a huge boost in its share price for essentially meeting expectations, and that’s definitely not something I agree with. This diamond retailer is looking cloudier by the day if you ask me.

Kenneth Cole Productions
Nobody really paid attention when Kenneth Cole reported a wider-than-expected loss last week -- but they should have! Founder Kenneth Cole has plans in place to purchase the remaining shares of the company that he doesn’t already own, and take the apparel maker private, for $15.25 per share. With little wiggle room in the stock price, no one seems to care about it anymore; but for those of you who own designer apparel companies, you should be paying close attention.

Kenneth Cole noted that operating expenses are on the rise, and sales are falling, a bad combination indicative of the rough macro forecast. We saw a similar slowdown crush shares of Coach (NYSE: COH  ) last week after the designer handbag and accessory maker succumbed to weakness in North America at its factory stores. This could mean trouble even for high-growth retailer Michael Kors, which has resisted signs of consumer spending weakness up to this point in time.

The point here is that retailers are missing estimates at an alarming rate, and those of you who own apparel or accessory companies that are extremely pricey, or have significant North American or European exposure, need to be on alert.

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.

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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 Netflix and Coach. Motley Fool newsletter services have recommended buying shares of Netflix, Blue Nile, and Coach, as well as a put spread position in Blue Nile. 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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