3 Earnings Reports That Caught My Attention Last Week

The first half of 2012 is now in the books, and now that we're most of the way through the third quarter, I can't help but point 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.

Source: Yahoo! Finance.

VeriFone Systems
Although VeriFone easily surpassed Wall Street's EPS expectations in its fiscal third quarter, you wouldn't know it by the tumble the company took in lieu of that report. Investors ignored the positives and focused primarily on the very minor full-year revenue adjustment lower that it blamed on negative currency fluctuations. Well, I have news for investors: If currency fluctuations are the worst you can throw at VeriFone, then it has a very bright future!

Nearly every facet of its report signaled that strong growth lies ahead for electronic payment providers. Organic revenue growth, which excludes its recent acquisitions of Hypercom and Point, jumped by 16%, while high-margin service revenue spiked 119% to $138.8 million with system solutions revenue up "only" 38% to $350.2 million. Internationally, revenue at its Europe, Middle East, and Africa segment more than doubled. In short, business opportunities abound for VeriFone.

As I opined last month, both eBay's (Nasdaq: EBAY) PayPal and privately held Square are in a heated battle for mobile payment supremacy with each latching onto major retail partners. As long as this battle continues, demand for the devices that make mobile payments possible should remain strong. VeriFone's future looks bright.

Pep Boys
In recent months, this company has begun to look more like the Three Stooges and less like Manny, Moe & Jack. Pep Boys had done what was in the best interests of its shareholders and orchestrated a $15-per-share buyout with private-equity firm Gores Group, but that buyout fell through at the end of May due to its shaky second-quarter report. This week, Pep Boys added to its lackluster reputation by tacking on a third straight quarter in which it's missed Wall Street's expectations.

The auto service and parts retailer did receive a slight bump from the $43 million in pre-tax profit it booked due to the settlement from Gores Group, but unless Pep Boys is planning to court then break up with a potential suitor every couple of months, this isn't a viable long-term strategy. Overall, same-store sales were flat with a 3.1% boost in high-margin service revenue being completely wiped out by a 0.9% dip in merchandise sales.

The problem here is that there are simply no catalysts. Consumers are tight on spending money and are simply choosing to go to AutoZone or their local auto-parts store and do the repair themselves. Perhaps if Pep Boys cuts back on its merchandise inventory, then its service margins can shine through, but I highly doubt it can figure out a quick fix to its woes.

Hi-Tech Pharmacal
There are earnings misses, and then there's Hi-Tech Pharmacal. As I noted on Wednesday, this over-the-counter generic-drug maker wasn't even in the same zip code as Wall Street's estimates. Unfortunately for current shareholders, it wasn't just one problem but rather a multitude of issues that fueled the company's poor results.

To begin with, the company's primary growth driver, fluticasone propionate nasal spray, a generic form of GlaxoSmithKline's (NYSE: GSK) allergic rhinitis drug Flonase, saw sales dip to just $22 million from $26.2 million in the year-ago quarter. The main reason for the drop was the approval by the FDA in January of a competing generic Flonase treatment from Indian drugmaker Wockhardt. Also hindering results was a drop in both volume and price of dorzolamide, a generic version of Merck's glaucoma treatment.

Is there an end in sight to Hi-Tech's earnings woes? Not likely, in my view, given that its earnings misses have only gotten worse in three consecutive quarters and its operating expenses are on the rise. Get the flares and the caution tape out, because this stock has "avoid" stamped all over it.

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.

• Add VeriFone Systems to My Watchlist.
• Add Pep Boys to My Watchlist.
• Add Hi-Tech Pharmacal to My Watchlist.

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