It happens to every company sooner or later: Wall Street sets a mark for quarterly earnings, and the company misses that goal. 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'll meet a circuit-board manufacturer that came up a couple of resistors short, a case molder that couldn't quite close the case, and a whole drugstore full of medicine that didn't fix what ails the store.
Our first underperformer this week is Jabil Circuit
But a couple of weeks ago, the company warned that a range of $0.33 - $0.37 per share was more realistic, causing the share price to tumble more than 20% overnight. Wall Street chose to stick with the optimistic side of the new outlook, and the final result was slightly below that, at $0.36.
Revenues are growing at a healthy clip, up 34% year over year to $2.6 billion, but it's a low-margin business, and Jabil is facing some challenges these days. The litany includes inventory control problems, higher labor and materials costs, and "software problems at a tooling operation." There is also a restructuring effort going on, with some factory closings expected in the near future. On top of that, Jabil is one of the dozens of companies under scrutiny regarding stock option compensation practices.
Despite all of these dark clouds hanging over the company, Jabil caved to investor pressures and issued its first-ever quarterly dividend this quarter. Management says that the next reporting period will see significant earnings impact from the restructuring program, but net margins should subsequently rebound to the 4% range after languishing in the 3% area for a few years.
That's better than Jabil's closest competitor Flextronics
Let's move on to Deswell Industries
You might expect a small company firmly connected to the hot gadget market to grow like the dollar weeds in my backyard, but Deswell has been floundering ever since a successful second half of 2004. It seems like a customer list topped by Seiko Epson, toy and phone maker Vtech, and telecom infrastructure equipment maker Inter-Tel
Our last downer this time is Rite Aid Drugstores
Rite Aid is a small fish in a big pond, and hardly causing Walgreen
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 really are stuck in the mud. Come back next Monday, and we'll take a look at another batch of mishaps and disappointments. It'll be fun and educational. Promise.
Further Foolish Reading:
- Take cheap when you can get it.
- Fellow Fool Dan Bloom thinks Jabil may be worth a look now.
- Rite Aid doesn't exactly tickle another Fool pink, though.
Seeking great deals on unfairly punished stocks? Philip Durell and his merry band of Fools at the Motley Fool Inside Value newsletter service are standing by to help you find great stocks at ridiculously low markdowns. Try a 30-day trial subscription to see whether bargain-hunting is right for you.
Fool contributor Anders Bylund owns no stock in the companies discussed, but he still remembers the Jabil booth at a college job fair many years ago. Foolish disclosure rules ensure that you know when your favorite writers are trading your favorite stocks.