It happens to every company sooner or later: Wall Street sets a mark for quarterly earnings, and the company misses that goal. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down. Today, we'll see that video-on-demand still needs some tuning, even Plato has a lot left to learn, and all is not as it seems in Chicago.
Our first underperformer today is SeaChangeInternational
Why? To begin with, the on-demand video business is still in its infancy. Management comments in the earnings release pointed to strong prospects, as several large, multiyear customer agreement negotiations are under way. Could SeaChange be talking to Amazon.com
Revenues came in at $20 million, 36% below the $31.5 million seen last year, so it's not hard to see why losses were magnified. According to management, the company is in the middle of transitioning to a new product line, new subscription-based licensing programs, and new customer segments, and a freshly hired set of sales account managers are still learning the ropes of the business.
It's a little bit ironic to see a training and education company blame the learning curve of new processes for their problems, but that's what PLATO is doing here. The company thinks that it's a temporary situation, and that sales and income will inch back up once all the new procedures have been absorbed. I'd give PLATO a hall pass for a couple of quarters and check back on its progress toward the end of the year. If it's still cramming by then, I'm afraid the test was too hard.
Bridge & Iron
The difference is explained by more expensive projects, which brought gross margins down from 10.6% to 9.2% year over year, and much higher sales, general, and administrative expenses. Say hello to our old friend "the stock options expense" again. The company didn't break out SFAS 123 expenses separately, but it did say that the charges accounted for the majority of the operational expense increase, alongside corporate restructuring and internal accounting inquiry charges.
An audit flagged two contracts for possible inappropriate accounting practices last year, which led to the loss of the company's CFO, COO, and CEO in a two-month span. The company believes these problems have been corrected, and given its $3.4 billion order backlog, its future is looking brighter. Chicago Bridge & Iron should be able to leave the sordid accounting affair behind and refocus its efforts on the lucrative oil infrastructure business.
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 really are 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. Promise.
Further Foolishness that won't disappoint:
- Take cheap when you can get it.
- Maybe Viacom
(NYSE:VIA)wants whatSeaChange can offer?
- PLATO was in similar trouble last year, too.
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Netflix and Amazon.com both made Tom and David Gardner's list at Motley Fool Stock Advisor.
Fool contributor Anders Bylund owns shares in Netflix but holds no position in the other companies discussed this week. He can smell the sea change on the entertainment breeze. Unlike these companies, Foolish disclosure is always reliable.