OK, my prediction for horrible first-half results from aesthetic laser manufacturer Candela
So how does the analyst community, including myself, get it oh so wrong? I blame Candela, naturally.
The company doesn't provide forward guidance, which is actually a good thing. It should help investors stop thinking short-term, and I'd hope that other companies would actually follow suit. So without any guidance from management, an analyst must look at other factors.
For example, after the fourth-quarter earnings report last month, Candela updated its investor presentation with new figures that would allow you to see how things were progressing and what the future portended. Further, the company did not discuss the first half of the new year, but talked about how marvelous the second half of the year was going to be with new product introductions. By not mentioning the first two quarters of the year and focusing on the first half of the new calendar year, the company left the impression that it wouldn't be doing much in the interim, a time that's typically one of its weakest periods anyway.
To my mind, that's a near-deliberate way to "surprise" the investor community. CEO Gerard Puorro has been known to engage in some linguistic sleight of hand at times, so I'm not surprised, really, that the company's first quarter looks as good as it does. For example, it's labeled stock option expenses and its legal expenses from the counter-lawsuits against Palomar Medical Technologies
Still, while the company beat the analysts' lowball numbers, it didn't really beat its own performance from the year before. There are a lot of ways to slice and dice a financial statement, and I'd say that looking at the money the company makes from its ongoing business (i.e., income from operations), Candela has underperformed last year.
Operating income for the laser maker is this company's measure of core profitability, and while it came in at $0.11 a share, that's well below the $0.18 it posted last year, primarily due to the large increases in both R&D and SG&A expenses. Revenues rose 19%, but administrative costs rose 27% year over year and R&D was up more than 100%, causing a 35% decrease in operating income.
The market seemed to ignore all that, focusing instead on top-line growth and the company's stated earnings of $0.18 per share. The stock rose 26% yesterday. Don't get me wrong -- as a shareholder in Candela, I'm happy to see the stock on the move in the right direction, particularly after the company's dismal performance last quarter. Yet as I've come to learn with this company, not everything is quite what it seems, and just when it looks like it's got its act together, it singes itself and pulls back.
I like the company, its products, and its technology. Management leaves a little something to be desired for my tastes, and Candela's patent fight with Palomar could be problematic. Palomar has brought laser manufacturers Cutera
With new products coming to market soon, and the sales team of McKesson
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