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 note that eucalyptus could smell sweeter, ask why the bus is late, and watch some cars sputter.
Our first disappointment this week comes from Brazilian pulp maker Aracruz Celulose
That's not to say that Q2 2006 was a bad performance from Aracruz -- the reported earnings are almost double those of last year's Q2 at $0.55. Sales performance was strong, too: Production and volume shipment rose 10% year on year, and revenue landed at 882 million reais, or roughly $400 million. That's about 23% higher than the year-ago sales of $325 million.
The Brazilian currency has been strengthening rapidly against the dollar for some time now, making the estimation of Brazilian financials difficult at best. But it's easy to say that the outlook here is good. Worldwide pulp production is held back by plant closings in Europe and North America, while some Canadian factories have had production problems, and the entire Finnish paper industry went on strike this quarter.
On the other hand, demand is rising thanks mainly to Chinese market growth. Because of low labor costs and high-yield eucalyptus assets, Brazilian pulp makers such as Aracruz and Votorantim Celulose
Let's move on to bus operator Laidlaw International
Growth in the Greyhound Bus segment accounted for most of the revenue and earnings rise, packing more passengers into the average bus and charging them higher ticket prices than last year. That more than makes up for the smaller number of routes serviced, and it makes for a leaner, meaner operation going forward.
While Greyhound is the fast grower here, the school bus services division is the real cash cow, with 62% higher revenues and five times the operational earnings of Greyhound. The segment saw much higher sales but lower income than the prior-year period, an oddity explained by rising fuel costs not quite made up for with fuel surcharges. I'm not sure how much more efficiency can be squeezed out of this already tight operation, and my Foolish colleague Stephen D. Simpson may have been right when he noted last year that he believed he had missed the bus on Laidlaw already.
The company is trying to increase shareholder returns with a massive share-repurchase plan, buying back about one-fifth of the outstanding shares -- with borrowed money. Management says it is are creating a "more appropriate" capital structure. It's true that leverage can have its place -- just look at banks, for example -- and organic growth is hard to come by in the bus market. Still, I'd prefer to see a clean balance sheet before the company borrows money just to give it away. Oh, well.
Our final underdelivery today is courtesy of America's Car-Mart
The company grew its number of sales lots by 12% and same-store sales by 8.3%, so there's nothing wrong with the organic growth here. America's Car-Mart focuses on smaller markets, mainly in the Midwest, and shares more than just part of its name and its headquarters town of Bentonville, Ark., with Wal-Mart
Try as I might, I can't find another car dealership operation that even comes close to America's Car-Mart's brilliant margins across the board. Coupled with revenue growth to rival United Auto Group
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 Foolish Reading:
- Take cheap when you can get it.
- Car-Mart is a different kind of story.
- Follow the paper trail to Brazil!
Seeking great deals on unfairly punished stocks? Philip Durell and his merry band of Fools at the Motley Fool Inside Value newsletter service are standing by to help you find great stocks at ridiculously low markdowns. Try a 30-day trial subscription to see whether bargain-hunting is right for you.
NYSE Group is a Motley Fool Stock Advisor selection, and Wal-Mart is an Inside Value pick.
Fool contributor Anders Bylund owns no stock in the companies discussed this week, but he is a frequent Wal-Mart shopper. Foolish disclosure is cheaper than a bus ticket and more reliable than a '95 Mustang.
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