It's tough to look at what Timberland (NYSE:TBL) had to say about its second quarter and feel positive about the results. But investors' shock and disappointment about the quarter is a bit surprising, because the company had mentioned that the results would be flat.

Here is where everyone gets up in arms: The results weren't just flat, they were down. Because of discounting in the U.S., earnings per diluted share were down 22%, and operating income was down 30.4% versus last year. Wait. There's more. Timberland has guided investors to expect more flat results next quarter.

Things aren't as bad as they seem, though. Timberland's international operations performed well during the quarter, and the company still has a debt-free balance sheet. The second quarter isn't normally strong for Timberland, but its free cash flow performance improved by more than 30%. The company also continued to do a solid job of managing its cash, with $190 million of the green stuff on its balance sheet and zero debt.

While some pundits may point to the poor quarter and recommend staying away from the shares, I'm not in that camp. I get curious when I see a 12% haircut at a company that generates a mountain of free cash flow on an annual basis. Based on the free cash flow and potential for growth, the shares look cheap to me. You can say much the same for competitor Wolverine Worldwide (NYSE:WWW). The primary difference is that Wolverine rewards its shareholders with cash dividends and share repurchases; Timberland only goes with the latter.

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Nathan Parmelee has no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.