Companies undergoing structural changes often pose challenges for investors trying to figure them out. A. Schulman's (NASDAQ:SHLM) fourth-quarter and fiscal-year 2005 earnings press release provides a good example.
The plastics manufacturer has been struggling with its North American operations and has taken a series of restructuring charges over the past five years in an attempt to get the business back on its feet. A. Schulman isn't alone in its pain, either. All of the players in the plastics industry -- even big boys such as General Electric (NYSE:GE) and Bayer AG (NYSE:BAY) -- have had their struggles over the past few years with rising material costs and increasing competition.
A. Schulman's results for all of fiscal 2005 look pretty good on the surface. Diluted earnings per share were up 13.2% to $1.03, versus $0.91 last year. But the report shows a slew of items that look to me like one-time gains, including $0.14 per share in tax benefits caused by tax changes in Mexico, $0.02 per share from selling an office in Europe, and $0.03 per share from "refinement of assumptions relating to freight in North America." Back out all of those one-time gains, and the earnings for 2005 come in at only $0.84 per share, below last year's results.
Last year's earnings of $0.91 per share also look to be depressed by a number of one-time items, including $0.07 per share in restructuring charges, $0.06 for impairment of goodwill, and $0.05 for unrecoverable tax assets. Reverse those one-time charges, and the earnings for 2004 come in at a much higher $1.09 per share. Sure, an argument can be made that not all of these items should be reversed. However, no matter how the data is sliced, it's tough to swallow the company's press release trumpeting increased net income for 2005.
A. Schulman's results really warrant further inspection before we can draw a conclusion regarding its growth prospects. And doing so requires normalizing the company's tax rate, as well as showing a bit of patience, because the company's press release provides no statement of cash flows and only a summary level of its balance sheet. To really crack this nut and understand what happened in the past year, investors will want to wait for A. Schulman to file its 10-K with the Securities and Exchange Commission. Or investors could just move on, since there are plenty of other companies out there that are easier to figure out, even if they don't carry A. Schulman's enticing 3.4% dividend yield.
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Nathan Parmelee still thinks a 3.4% yield is a good thing. He has no financial stake in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.
