Earnings season is a time for companies to strut their stuff. Some will perform up to analysts' expectations, and some will make shareholders very happy and exceed those targets.
This is not their story. Rick Munarriz already does a smashing job of turning you on to the outperformers of the bunch. Instead, we'll take a look at a few of the unfortunate companies that failed to perform to the expected standard, and we'll examine what caused them to stumble.
The first company we're looking at this week is United Fire and Casualty (NASDAQ:UFCS). This Motley Fool Hidden Gems selection is still smarting from Hurricane Katrina. Reinsurance coverage of the impact from that storm ran out in 2005, causing United Fire to record $0.86 per share of related losses in Q1 and dragging reported earnings down to $0.57. Ouch.
Analysts had expected a gain of $0.97, so they clearly didn't expect the belated wallop that Katrina delivered. Missing your target by 41% hurts, but the market largely took the news in stride and shaved only 3% off the stock price. It looks as if most investors saw this one coming, even if the pros didn't.
Our next underperformer is M/I Homes (NYSE:MHO), which was expected to rake in $1.45 a share but could come up with only $1.14. And that's after looking under the couch cushions. The 21% shortfall represented a 2% decrease in profits from the same quarter of 2005, showing that a full order book can't always overcome lower average selling prices.
M/I builds some nice homes -- including a few of my current neighbors' -- but we might be seeing the end of the housing bubble, and if so, it will be harder for homebuilders to demand the prices they have come to expect lately.
Finally, there's Overstock.com (NASDAQ:OSTK). The online closeout specialist reported a loss of $0.82 a share, while eight analysts averaged a slightly smaller loss estimate, at $0.64. Even though revenues were up 9% over Q1 2005, the gain was nibbled away by more expensive goods sold, rising SG&A expenses, and a large block of technology upgrades.
Not even taking the foot off the advertising pedal a bit was enough to stem the red ink this time, and as a result, the company seems to be stuck in a holding pattern. Patrick Byrne sees another quarter of low tide, a breakeven situation in Q3, and a return to profits by the fourth quarter. Can he deliver? It depends on whether those infrastructure upgrades prove to be worth the cost.
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 are really 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, I promise.
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Anders Bylund owns shares in United Fire and Casualty but holds no other position in any company mentioned. His two small children have taught him that playing in the mud is great fun. The Fool has an ironclad disclosure policy.
