FLY Leasing, a lessee of medium-aged aircraft, had a quarter that has certainly cleared this stock for takeoff. In the most recent quarter, FLY reported a profit of $1.15, up from $0.78 in the year-ago period, as revenue rose $9.9 million to $114.4 million.
More important, the company’s financial leverage was reduced to just 3.2 times equity at the end of the quarter compared to a leverage ratio of 5.1 just two quarters ago. FLY is significantly smaller than its peers, so it required taking on large amounts of debt in order to purchase a fleet of competitive aircraft. Having the ability to refinance its debt to lower rates and reduce its debt by $70 million in the most recent quarter is an incredibly strong sign.
Also, much of the airline industry is swimming in debt. For many larger carriers this means either relying on older planes with terrible fuel efficiency or purchasing new fuel-efficient planes but going even deeper into debt. This is where FLY comes in with reasonably priced leases that offer better fuel efficiency than older-model planes without the need to go deeply into debt by purchasing a new plane. At less than eight times forward earnings, FLY continues to look as if it could soar even higher.
What we have with FreightCar America has been two brutal overreactions by investors in both a positive and negative light.
In the first quarter of 2012, strength in coal sales pushed railcar deliveries over 2,600 units. Yet, in its recently reported quarter, railcar deliveries slumped to just 1,073 units as coal shipments remained weak. What investors should really be expecting out of FreightCar America is some figure right in between.
Weak coal prices and demand haven’t just sapped FreightCar America’s railcar business; they’ve been a drag on the entire sector. CSX Corporation (NYSE:CSX), for example, derives more than a quarter of its revenue from coal shipments, and shareholders have seen shares struggle under the weight of weak demand. The good news for both shipper CSX Corporation (NYSE:CSX) and railcar builder FreightCar America is that coal demand could be on the rebound sooner than you think. Natural gas prices have doubled over the past year, making coal a considerably more attractive option once again for electric utilities. In addition, the Obama administration’s push toward a more energy-independent America is only going to encourage the continued use of coal to meet those ends.
While there’s no sugarcoating that a 400% earnings miss is nothing short of ugly, the longer-term outlook for the railcar business is still very much intact. If this stock continues to fall, I think you have to seriously consider digging deeper into this story.
Sometimes an earnings beat or miss isn’t as cut-and-dried as it appears. I’ve given my two cents on what’s next for each of these companies — now it’s your turn to sound off. Share your thoughts in the comments section below and consider adding these stocks to your free and personalized watchlist.
The article 3 Earnings Reports That Caught My Attention Last Week originally appeared on Fool.com.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Medtronic.
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