These three companies did not live up to Mr. Market's expectations last week. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down.
Today we're going to coo, "Free China!" Yes, really.
I am the walrus
First, the cooing: The analyst consensus said that Cooper Companies (NYSE: COO) should have delivered $0.68 of non-GAAP earnings per share, but the company came up with only $0.54. It was obviously not my fault, because I bought a full year's supply of toric contact lenses from these guys during the quarter in question.
No, the shortfall came from a tripartite combination of currency exchange rate fluctuations, integration costs related to the merger with Ocular Sciences, and more aggressive new product launches than originally planned. Trial lenses and marketing don't come cheap, you know.
But there's an upside to the downside. The heavy marketing blitz stole a little bit of market share from rivals like Johnson & Johnson's (NYSE: JNJ) Vistakon subsidiary and newly private Bausch & Lomb, according to Cooper's management. Doing that on a regular basis gets Cooper closer to one of its five-year goals -- second-place market share in contact lenses, after mastodon Vistakon. On the other hand, it takes it further away from the goal of operating margins in the mid- to upper-20s. They came in at 18% this time.
What we have here, then, is a company in transition. The stock price is crawling around at a five-year low, and management doesn't seem to have full visibility into its own near-term plans.
On the other hand, I like the clarity and ambition you see in the long-term plan. The situation doesn't scream "Buy!" but it is whispering, "Have a closer look." Maybe a few of my readers with a better grasp of the lens market could contribute some wisdom in Motley Fool CAPS to give me -- and everyone else -- a better view of the big picture. Yes, that could be you. Right this way.
Free as a bird
Then, it's time for freedom: Dry-bulk shipper FreeSeas (Nasdaq: FREE) reported a $0.08 loss per share, where Wall Street wanted only a nickel's worth of red ink. That's despite much higher revenues than expected, which looks like a weak combination on the surface. However, the earnings miss is easily explained by costly interest rate swaps. That's more of an investment effect than an operational issue, which makes me breathe easier.
On the other hand, I look at FreeSeas and can't help but think of rival DryShips (Nasdaq: DRYS). That's one of the scariest stocks in the world, and one I wouldn't touch with a 10-foot oar. The likenesses go beyond a similar market and headquarters a discus-throw apart -- both CEOs own a rather excessive share of their companies. DryShips leader George Economou seems bent on enriching himself at the expense of gullible shareholders, and I don't know enough about his FreeSeas counterpart, Ion Varouxakis, to clear him from similar ambitions. Is he a positive or negative Ion? I don't know, and the whole sector looks so inflated right now that I don't care to find out.
Searchin'
Finally, we're going Chinese: Chinese software maker CDC Corp. (Nasdaq: CHINA) was supposed to show us $0.08 of earnings per share, but came up with $0.04 per share.
A company that once made solid profits from online gaming and cell-phone services has now turned to enterprise software for bragging points. Rivals like Shanda Interactive (Nasdaq: SNDA) and KongZhong (Nasdaq: KONG) are eating CDC's lunch in the Chinese gaming and mobile sectors nowadays, while CDC complains about piracy.
The company wants to go across the sea for new high-growth markets, selling games to American consumers next year. I'm not going to hold my breath waiting for a runaway success story in this mature market. And neither should you.
The end
We hope you have enjoyed a magical mystery tour of real-language tickers with this Fool on the hill. Some of these underperformers are victims of larger circumstances, while others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps, and which ones are stuck in the mud for real.
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