Because of the financial crisis, companies everywhere took a massive hit to earnings. In the several years since, companies have been able to post massive improvement on a year-over-year basis — but we’ve always known that these rates weren’t sustainable. So now, the year-over-year comparisons are getting tougher. And investors are prone to making moves based on the headlines, rather than digging deeper into the details.
Let’s take a look at the latest earnings results:
Independent refiner Tesoro (NYSE:TSO) released mixed operating results for the fourth quarter before the opening bell Friday, Feb. 3. On the one hand, its sales climbed 40% year-over-year to $7.71 billion, topping the consensus sales estimate by 41%. However, its earnings did not fare as well. The company had cut its fourth-quarter guidance due to the narrowing WTI-Brent crude spread. Well, the company lived up to its conservative guidance in the fourth quarter, reporting a loss of $124 million — 89 cents per share in the quarter. This missed the consensus estimate by about 48%.
Now, these numbers aren’t pretty, but investors were hardly fazed, and there’s good reason why.
First, despite the lackluster fourth-quarter earnings, the company still posted the best full-year results since 2007. This is because the company is responding to the challenging spread environment by ramping up its operational efficiency and effectiveness. And the company has every intention of continuing this strategy throughout 2012.
For example, in early January the company announced it was selling its Hawaii operations, which no longer played as well into its long-term business model. Tesoro is zeroing in on the mid-continent and the West Coast, and has plans to invest $190 million in its Salt Lake City refinery.
Silicon Motion Technology (NASDAQ:SIMO) announced stunning top- and bottom-line numbers for the fourth quarter. Thanks to a fantastic turnout from its OEM (original equipment manufacturer) business, the semiconductor company achieved the highest level of quarterly revenue in company history.
Fourth-quarter sales surged 68% year-over-year to $67.15 million. Analysts forecast sales of just $60.49 million, so the company yielded an 11% sales surprise. Over the same period, adjusted net income skyrocketed 178% to $16.1 million, or 47 cents per share. This topped the consensus earnings estimate of 34 cents per share by a whopping 38%.
SIMO shares were volatile immediately after earnings but gained more than 1% Friday on the news, but were being hammered by more than 7% on Monday.
Transcend Services (NASDAQ:TRCR) released mixed fourth-quarter operating performance. Sales climbed 22% year-over-year to $32.89 million, a slight 5% miss from analyst estimates, while quarterly net income more than tripled to $8.31 million, or 75 cents per share.
However, adjusted net profit, the baseline for analyst comparisons, declined to $2.77 million, or 25 cents per share due to an unexpected jump in medical claims and higher health insurance expenses. This was a 29% miss from analyst expectations of 35 cents per share and drove down shares. Nonetheless, this is not our time to sell TRCR. Many investors placing knee-jerk sell orders missed an important detail of the company’s earnings announcement — that the company still achieved record sales in 2011 and, once fully implemented, should generate between $15 million and $19 million of annual revenue.
Also, management is currently taking corrective measures to address these higher costs, including shutting down an operations center in Delhi, India. The company shifted this operation to Bangalore because the third party partners there offer improved quality at a better cost. I am confident that this is a sound plan that will improve Transcend’s bottom-line growth.