Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let’s take a look at five dumb financial events this week that may make your head spin.
1. Hit the deck
Trex Company, Inc. (NYSE:TREX) isn’t doing as well as it thought it would be doing.
The leading maker of wood-alternative decks and railing products tumbled 12% on Tuesday after posting quarterly results that betrayed its earlier guidance.
Revenue climbed 4.5%, to $98.6 million, but Trex Company, Inc. (NYSE:TREX) itself had told investors in early May to expect revenue to clock in 10% higher. It was already several weeks into the second quarter at the time. What could possibly have gone wrong?
Rain! Trex Company, Inc. (NYSE:TREX) alluded to a wet June drying up demand for new and replacement decks. Pulling a Milli Vanilli playlist, Trex blames it on the rain.
That’s fine. Trex Company, Inc. (NYSE:TREX)’s product may be weather-resistant, but the same can’t be said for homeowner appetite for deck projects. However, wouldn’t a rainy June push sales to the current quarter? That doesn’t appear to be happening, as Trex Company, Inc. (NYSE:TREX) disappointed investors by eyeing just 2% in top-line growth for the third quarter.
2. Penney arcade
This just hasn’t been Bill Ackman’s year.
The historically astute Ackman has been on the wrong side of some prolific stocks lately, but then we get to his inexplicable plea for J.C. Penney Company, Inc. (NYSE:JCP)‘s board to hurry up and name a new CEO.
Interim CEO — and former helmsman of the struggling department store chain — Mike Ullman, may or may not be the right person for the job, but Ackman’s call for another former CEO to be brought on as board chairman to help expedite the CEO process is hard to swallow.
It was Ackman, after all, who championed the effort to bring Ron Johnson to J.C. Penney Company, Inc. (NYSE:JCP). His radical makeover practically killed the chain (or maybe it did and it’s just the walking dead now). J.C. Penney Company, Inc. (NYSE:JCP) rushed the leadership process once at Ackman’s insistence, and it was disastrous. Why would it pay off this time around?
Sometimes, an activist investor needs to know when to be passive.
3. Glu gun
Mobile apps publisher Glu Mobile Inc. (NASDAQ:GLUU) took a hit this week after forecasting revenue of $96.8 million to $98.9 million for all of 2013. Analysts were only holding out for $84.4 million, so what could be the problem?
Well, for reasons that are not entirely clear, Glu Mobile Inc. (NASDAQ:GLUU) is reworking the way it does its accounting. It restated results all the way back to 2010 to begin including the 30% commission that it pays to iOS and Android marketplaces for in-game purchases. Naturally, cost of revenue also rises by the same amount. Profitability remains the same. However, this does inflate the top line.
We know how dramatic this can be, because last year’s revenue of $87.8 million is now recast as $108.9 million. What seemed to be an upbeat top-line forecast is actually pretty bleak, and that’s before we get to the larger-than-expected deficits that Glu Mobile Inc. (NASDAQ:GLUU) is now targeting for the current quarter and all of 2013.