3 Earnings Reports That Caught My Attention Last Week

As we enter the heart of second-quarter earnings reports, I can't help but point out that the majority we've covered over the past year 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 for the past 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

NuVasive (NASDAQ: NUVA  )

$0.22

$0.26

18%

FLY Leasing (NYSE: FLY  )

$0.76

$1.15

51%

FreightCar America (NASDAQ: RAIL  )

$0.06

($0.18)

(400%)

Source: Yahoo! Finance.

NuVasive
NuVasive, a surgical device company that makes spinal implants, reported Street-topping results yet again last Tuesday. Having topped estimates by an average of 27% over the last four quarters, NuVasive delivered 5% sales growth and a higher gross profit despite a small 20-basis-point drop in gross margin to 75.5%.

However, the fact that the company topped estimates yet again wasn't what interested me; nor was it the fact that it stuck to its full-year adjusted EPS forecast of $1. The interesting tidbit in NuVasive's report was that its expenses ticked higher due to "international infrastructure expansion" as its earnings report states. 

If you recall, NuVasive's CEO, Alex Lukianov, took out an op-ed in the San Diego Union Tribune in June of last year to describe the negative impact that the Patient Protection and Affordable Care Act, also known as Obamacare, was going to have on his company's bottom line. Specifically, Lukianov noted that with 100% of its R&D and 90% of its manufacturing done in the U.S., it was going to face shrinking margins. This report signals very clearly that NuVasive is beginning to move more aspects of its manufacturing and perhaps R&D overseas.

This wouldn't actually be surprising, as Medtronic (NYSE: MDT  ) , another large medical-device maker that specializes in spinal implants, announced last year that it'd be hiring up to 1,500 people, but noted that the majority of these hires would be overseas. Overseas markets certainly supply cheaper labor potential, but they also offer friendlier tax environments. As NuVasive expands its global presence, expect its profits to improve.

FLY Leasing
FLY Leasing, a lessee of medium-aged aircraft, had a quarter that has certainly cleared this stock for takeoff. In the most recent quarter, FLY reported a profit of $1.15, up from $0.78 in the year-ago period, as revenue rose $9.9 million to $114.4 million.

More important, the company's financial leverage was reduced to just 3.2 times equity at the end of the quarter compared to a leverage ratio of 5.1 just two quarters ago. FLY is significantly smaller than its peers, so it required taking on large amounts of debt in order to purchase a fleet of competitive aircraft. Having the ability to refinance its debt to lower rates and reduce its debt by $70 million in the most recent quarter is an incredibly strong sign.

Also, much of the airline industry is swimming in debt. For many larger carriers this means either relying on older planes with terrible fuel efficiency or purchasing new fuel-efficient planes but going even deeper into debt. This is where FLY comes in with reasonably priced leases that offer better fuel efficiency than older-model planes without the need to go deeply into debt by purchasing a new plane. At less than eight times forward earnings, FLY continues to look as if it could soar even higher.

FreightCar America
What we have with FreightCar America has been two brutal overreactions by investors in both a positive and negative light.

In the first quarter of 2012, strength in coal sales pushed railcar deliveries over 2,600 units. Yet, in its recently reported quarter, railcar deliveries slumped to just 1,073 units as coal shipments remained weak. What investors should really be expecting out of FreightCar America is some figure right in between.

Weak coal prices and demand haven't just sapped FreightCar America's railcar business; they've been a drag on the entire sector. CSX (NYSE: CSX  ) , for example, derives more than a quarter of its revenue from coal shipments, and shareholders have seen shares struggle under the weight of weak demand. The good news for both shipper CSX and railcar builder FreightCar America is that coal demand could be on the rebound sooner than you think. Natural gas prices have doubled over the past year, making coal a considerably more attractive option once again for electric utilities. In addition, the Obama administration's push toward a more energy-independent America is only going to encourage the continued use of coal to meet those ends.

While there's no sugarcoating that a 400% earnings miss is nothing short of ugly, the longer-term outlook for the railcar business is still very much intact. If this stock continues to fall, I think you have to seriously consider digging deeper into this story.

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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