These three companies just didn't 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.
Fasten your seat belts
First up today is recreational vehicle veteran Winnebago Industries
Consumers are having a harder time converting home equity into RVs these days, and when you add in the rising gas prices, you get a powerful double whammy across the entire RV industry. Winnebago and Fleetwood Enterprises
The company took action by cutting 300 jobs -- 9% of the workforce -- over the past quarter. Olson explained that this will help Winnebago "achieve our primary objective, which is to build quality motor homes while remaining profitable."
And the $60 million share buyback authorization is on hold until management can convert some short-term securities into cash. A failed auction on $54 million in debt papers in February inspired the company to reclassify its entire short-term investment balance as long-term investments for now.
The baby boomers aren't getting any younger, which should bode well for 'Bago, Thor, and the rest in the long run. But it'll be a bumpy ride until the credit market sorts itself out.
Cut the tension with a knife
Next up, we have soon-to-be-acquired drug developer Encysive Pharmaceuticals
Management is hoping and praying for a quick resolution to the pending acquisition by Pfizer
That's all in Europe, though -- the drug has not received full FDA approval in the United States. Until the Pfizer deal goes through, Encysive is running on a skeleton crew, having slashed most of the U.S. sales force and research personnel to focus on the European market. The company is leaving with a whimper, not a shout.
Sleight of hand ain't enough
There's only one underperformer left on the dance card this week, and it's gadget guru Palm
A non-GAAP $0.16 loss per share on $312 million in sales compared badly to analyst expectations of a $0.14 loss per share on $315 million in sales. The revenue number was also less than last year's $410 million.
The gross profit dropped sequentially from $103.8 million last quarter to a paltry $93.2 million this time. Management says that its low-cost, full-featured Centro handset is responsible for the relatively steady sales, and notes that the model is getting end-users to upgrade from traditional not-so-smart phones rather than cannibalizing the high-end Treo line.
Then again, Palm doesn't need to eat its own premium line, because Apple
It's a new era for Palm. The company has been relegated to a low-cost market rather than the juicy high-end market to which it has long been accustomed. There's a changing of the guard in the handset market, and the upstarts are looking mighty hungry. Maybe Palm can regroup and, I don't know, introduce developing nations to the joys of mobile Internet access. But I wouldn't bet my own money on that long shot.
Some of these underperformers are victims of 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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