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, in order from least to most comprehensible, we're looking at superparamagnetic iron oxide nanoparticles, telecommunications engineering services, and steaks. Let's dig in!
Superparafragilistic ... huh?
If you've never heard of our first sandbagger today, it's probably because it operates in a field nobody but the insiders knows much about. But Advanced Magnetics
And of course, revenues are slim and unpredictable. Advanced Magnetics' established product portfolio doesn't have the oomph it once did, and the company hasn't seen $1 million of quarterly revenue since 2004. Yet the share price has more than quadrupled from its 52-week low, thanks to a string of promising progress reports on its phase 3 trials of an intravenous iron replacement therapy for patients with severe kidney disease.
Development efforts on that drug, known as Ferumtoxyl, provided most of the cost increase for this quarter, and the company is expected to file for FDA approval in the second half of 2007. The board of directors got a major overhaul in September, and the company moved from the American Stock Exchange to the much more liquid Nasdaq in June. Current results don't look great, but Ferumtoxyl could change that in a hurry, with current competition from just one drug. But do your homework before rolling the dice, as it will take some growing to fill the shoes outlined by a $600 million market cap.
Options? What options?
Let's move on to Dycom Industries
The main culprit in this saga is interest expenses. Last year, that line item accounted for an $842,000 charge, which grew to $3.8 million this time around. Operating income, which doesn't include interest and taxes, grew by 11.3% on 6.6% higher revenues. So from an operational point of view, things look OK, but there's a heavy debt load to pull.
Sprinkling salt on those wounds in Dycom's accounting department, the company also found problems in its past option grants. There was no evidence of illegal backdating activity or fraud, but the review did find instances of missing or delayed paperwork. The impact on released results is said to be "immaterial," but the company did provide a restated balance sheet for the previous quarter with a $2.2 million charge for these findings.
Add in guidance below expectations, and you get a more than 10% price drop on this earnings release. As long as Verizon
Dinner's on me!
We'll settle down at Japanese steakhouse operator Benihana
That $0.23 per share was in line with the company's official guidance, though, so chalk this one up to overly optimistic analysts. On the other hand, Benihana could've and should've done better. Results were held back by longer-than-expected remodeling closures of two restaurants, plus an unexpected closure in Miami Beach due to a kitchen fire. Management is baking while the oven is hot, turning that closure into another remodeling project rather than waiting for its scheduled 2008 makeover.
Renovations cost Benihana about $8 million this quarter, or $0.05 per share after tax, so on a purely operational basis, I'd say the company is doing just fine. Granted, it's not growing as fast as Buffalo Wild Wings
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:
- Raging Rewards From Restaurants
- My Biotech Fantasy Team
- Will Dycom Phone In Some Growth?
- Take cheap when you can get it .
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Fool contributor Anders Bylund holds no position in any of the companies discussed this week, though he's suffering from a longstanding teppanyaki addiction. That shrimp sauce is evil -- but oh, so good. The Fool has a disclosure policy , and you can see his current holdings for yourself.