Don't settle for ordinary quarterly reports.
Every week, I take a look at three companies that beat market expectations, since I believe that it's the biggest factor in a stock beating the market. Leaving Wall Street's pros with stunned expressions can be a good thing. It usually means that the companies have more in the tank than analysts figured. Capital appreciation typically follows.
Let's take a look at a few companies that humbled the pros over the past few trading days.
We can start with Diamond Foods (UNKNOWN:DMND.DL). Analysts were expecting the snack distributor to post a steep loss of $0.17 a share. Diamond surprised the pros by generating an actual profit of $0.05 a share.
Revenue may have taken an 11% hit, but that too was well ahead of expectations. The company behind Pop Secret microwaveable popcorn, Kettle Chips potato chips, and its namesake nuts has struggled to find firm footing with Wall Street since being rocked by an accounting scandal. The embarrassing ordeal found the company losing its CEO and CFO as well as a pending acquisition of the Pringles potato-chip line.
Diamond Foods moved closer to leaving its past behind by naming a new CFO last week, and surpassing expectations on the bottom line is another good way to make that happen.
Shares of PVH (NYSE:PVH) climbed better than 8% after the branded apparel giant behind Tommy Hilfiger and Calvin Klein dressed up a blowout quarterly report.
Adjusted earnings at the company that used to be called Phillips-Van Heusen soared 34% to $1.91 a share. Wall Street was braced for flat earnings growth, and it's hard to blame them. PVH's own guidance was calling for profitability to clock in at just $1.31 a share.
Surprisingly -- and not in a good way -- PVH actually stuck to its earlier guidance calling for a profit of $7 a share for the entire fiscal year ending in January. When a company delivers a blowout quarter like PVH just did, investors like to see the corporate outlook rise accordingly. It leaves the market wondering if the balance of the year will be weaker than originally projected. Clearly, the 8% pop in the stock last week proves that investors aren't overly concerned with that development, but it is something that bears watching.
Finally, we have Ulta Beauty (NASDAQ:ULTA) looking pretty. The chain of stores that sell beauty products and perform salon services proved that vanity still sells. Revenue popped 23% higher, fueled by brisk expansion and a healthy 6.7% uptick in comps. Profitability also grew by better than 20%, checking in at $0.65 a share.
Wall Street was only targeting $0.62 a share in net income, but is that really a surprise? Ulta has beaten analyst bottom-line forecasts for what is now 18 consecutive quarters.
Ulta was able to grow its earnings given a favorable product mix that favored its higher-margin prestige skincare and color cosmetics. The retailer has also tried to wean customers off coupons, allocating more of its marketing budget to performance-based online marketing strategies that target potential customers individually.
Growth should continue, and Ulta's on track to open 125 new stores this fiscal year.
Moving in the right direction
It's important to keep watching the companies that surpass expectations. Over time, it will be a lucrative experience for investors as the market rewards the overachievers. That's the kind of surprise that we look for in the Rule Breakers newsletter service. Want in? Check out a 30-day trial subscription.