Recently, I stumbled across three notable earnings misses – Tellabs, Inc. (NASDAQ:TLAB), Zoltek Companies, Inc. (NASDAQ:ZOLT) and Black Hills Corp (NYSE:BKH). I would not have noticed these companies because had they not been on my radar. All three are relatively smaller companies, market caps between $280 million and $1.78 billion, and belong to different industries. However, the earnings misses were not as much of a surprise as the performance of these three stocks.
Tellabs is a communications equipment company that also provides services to its customers. Its product portfolio includes products that enable delivery of wire-line and wireless voice, data, and video services and operates under three segments – Broadband, Transport and Services.
Analysts were expecting the company to report a negative EPS (-$0.02) for the fiscal quarter ended December 2012. However, the company surprised them and reported a nil EPS but missed the revenue forecast. Revenue for the quarter was $242.2 million, which missed the revenue forecast by $12 million.
Revenue during the quarter was also 24% less than the same quarter prior year. Revenue for the full year ended December 2012 was 20% lower than prior year. Although the company reported a significant reduction in cost of revenue and operating expenses, there has been an alarming increase in net losses, which is up from $4.9 million to $23.30 million.
The results were declared after hours. There hasn’t been any upward movement in the stock price in the run up to the earnings date. In fact, the stock closed just $0.01 up from what it was at the start of the month, when it had lost the gains made on declaration of special dividends in November 2012.
The stock gained 2.7% on January 31, 2013, the day the results were to be declared, but was being quoted at 5.70% less in afterhours. What is significant is that the analysts had forecast a negative EPS for the quarter.
Things That the Market Ignored
Regardless of inferences one can make from the results, the market has not cared to respond to positives relating to TLAB.
1). Announcement of share buyback program for repurchase of 22.5% of outstanding shares.
2). Aside from regular quarterly dividends, the company paid two special cash dividends of $1 each in December 2012, amounting to more than 50% of market price prevailing at that time.
3). The fact that the book value is $3 per share and the stock is trading at P/B ratio of 0.74.
4). The stock is undervalued at this price.
Black Hills Corp (NYSE:BKH) is a diversified energy company that operates with two major segments – Utilities and Non-regulated Energy. Earlier known as Black Hills Power and Light Company, it was incorporated in 1941 as an electric utility service. From 1956 the company started producing and selling various forms of energy through its non-regulated energy segment.
In its quarterly earnings report, the company reported an EPS of $0.68 beating analyst forecasts of $0.62. Adjusted income from continuing operations was $30.0 million, up from $19.7 million in the same quarter prior year. The company also announced a dividend payout of $0.38, which is an increase of $0.01 from the previous quarter.
In this case too, company missed revenue forecast by $46 million but the performance of its stock has been different from that of TLAB. In the run up to the earnings date, the stock gained 11.03% in January 2013. On the day the results were declared, it lost about half percent.
What the Market Took into Account
Black Hills has attracted the attention of investors after the recent sale of its oil properties and the forward guidance issued by the company. The regulated utilities segment is expected to account for 77% of earnings in 2013. However, it is the Oil and Gas division under the non-regulated segment that is primarily responsible for the recent investor interest.