Last week was a lot of fun for TurboChef (NASDAQ:OVEN) investors. Not.
First, the company missed both analyst revenue and earnings guidance, reporting sales of $9.5 million and losses of $0.17 per share, which were, respectively, 23% and 31% worse than analysts had already feared. In response to the news, shares fell more than 10% in after-hours trading on Wednesday -- only to rebound sharply once the markets reopened the next day, and close out Thursday at their pre-earnings report price!
On Friday, TurboChef shares joined the broader markets in shedding some value, but even so, they ended the week down a grand total of 3% from their pre-earnings report price. Let me put that another way: TurboChef totally blew analyst estimates for sales and profits, yet its shares lost almost none of their value as a result. Wow. How does that happen? Let's find out.
In addition to its lousy sales and profits numbers, TurboChef reported three kinds of good news last week. First, gross margins expanded to 30.4% -- 570 basis points better than the previous quarter (albeit 840 basis points worse than in the year-ago quarter). TurboChef attributed the sequential improvement to price increases of about 8% on non-contract customers beginning to take effect. The second bit of good news is related: The company promised "continued margin improvement as price increases . begin to take effect."
Margin improvement is a good start, but what about getting those sales numbers up? TurboChef promised more good news here as well, noting that it expects substantial new sales to customers such as Spain's Telepizza and Italy's Spoleto, as well as additional Subway sales this year. Together, it seems the several pieces of good news about the future outweighed Wall Street's disappointment with the recent past.
Also, you may recall that in previewing the company's earnings announcement, I suggested that shareholders look to TurboChef's balance sheet for news that it is working down its prodigious inventories. That happened, too. Although inventories climbed year over year (by 13%), sequentially, the company did start working the piles of unsold ovens down (by 5%). Meanwhile, TurboChef made even more progress on collecting bills, as accounts receivable declined 26%.
Two final notes about the balance sheet before we close. You may notice that cash on hand declined by nearly $7 million since last quarter. That's the result of free cash flow continuing to run negative. The company's net cash outflows were $7.2 million this quarter, or nearly three times as bad as in the year-ago quarter. Even so, TurboChef assured investors that it has sufficient cash on hand to complete its rollout of its new line of residential high-speed ovens and will not need to seek outside financing this year.
Fool contributor Rich Smith does not own shares of any company named above.
