RV and manufactured-homes parts supplier Drew Industries
One would be wrong.
In fact, Drew earned only $0.47 per share. The Street had predicted $0.50. What's more, the company actually beat sales estimates in earning those three-fewer-than-expected pennies. Rather than the 22% sales growth that Wall Street was looking for, Drew posted 24% growth. On the one hand, exceeding a goal is a good thing; but on the other hand, fewer profits from more sales means that Drew's margins contracted.
In fact, Chief Financial Officer Fred Zinn said as much, but he also told us why. Specifically, raw-materials costs in Q2 2006 exceeded those in Q2 2005. Now, Drew didn't have to "eat the loss." It was able to pass the higher raw materials costs on to its customers -- but without the kind of markup a seller usually charges on its products. The higher price of raw materials was passed on "at cost" and, as a result, Drew's overall profit margins on sales contracted.
The road less traveled
At this point in an article, I'd ordinarily hit the highlights of Drew's business. Fortunately for Fools who first learned about this company through Motley Fool Hidden Gems, though, there's no need: The team of analysts that prepares daily updates on our companies has already published a report. In it, you can read about overall sales trends in RVs and manufactured homes, and the effect of last year's hurricanes on Drew's sales in the second quarter (hint: none). Click here to read Bill Barker's write-up -- and if, in the process you get offered a free trial of the service, don't be afraid to accept. At the Fool, free means free.
So with Bill doing the heavy lifting today, I'll turn to two other issues:
SEP: Somebody else's problem
Watching Drew can be instructive, even if you don't own it. Are you an investor in Drew or a customer, such as Cavalier
Here, you take it
But to close this on a Drew-ish note, one thing Drew investors should be aware of going forward is that the company is busy unloading factories from its balance sheet. In the second quarter, Drew sold one factory for a gain of $3 million and immediately leased it back from the buyer. (Note that Drew hasn't booked the gain on the sale yet.) Drew says it has five more such factories that it wants to unload, presumably through similar sale-and-leaseback transactions. Expect to see more of these one-time gains in the future.
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Fool contributor Rich Smith does not own shares of any company named above.