The Rest of the Earnings Story (UBS, TM, JOE, THC, PER)

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August 4, 2009

(Originally written for Investopedia)

As we continue to roll through the thick of earnings season, it can be tough to review little more than the basics from a company…. how did earnings compare to last year’s comparable numbers, and how did they compare to analyst estimates? There’s just not much time for more than that.

Nevertheless, sometimes a little extra context can alter an investor’s opinion of a stock’s quarterly numbers. With that in mind, here are the condensed versions of the mental footnotes you may want to add to some key earnings news.

UBS (NYSE:UBS): UBS took its third loss in a row last quarter, in the hole by 1.4 billion francs/$1.32 billion. However, had it not been for write-offs and one-time charges, the foreign financial firm would have actually earned an operating profit.

Still, the net outflow of assets is troubling; nearly 40 billion francs were pulled out of the company’s investment management business…. a problem that has been persistent for a while. The IRS has all but forced UBS to hand over the names of thousands of its clients who may owe taxes, thus chipping away one of the investment manager’s key attractions to investors.

Add in the fact that its competition - like Barclays - is actually earning money again while UBS flounders and you’re left with a stock that’s still losing its luster.

Toyota Motor Corp. (NYSE:TM): Almost all the major stocks in the auto industry have made big gains lately… almost too big, in my view. The car market will recover, but I don’t think it will recover as solidly as these stocks indicate. In any case…

Toyota took a 77.8 billion/$818 million loss in Q2, which was far better than the 210.4 billion loss expected. On the other hand, it was much worse than the 353.7 billion profit created in the same quarter a year earlier.

Despite an improved outlook from the company for the remainder of the fiscal year, the stock didn’t budge. And, that may have been the right decision. Even the company acknowledged they saw no real pick-up in demand except that stemming from government support, which keeps the auto industry’s real recovery in question.

If Toyota earns as it’s expected to over the next twelve months, the forward-looking P/E is still a pretty hefty 27.8. That’s not a bargain price.

Tenet Healthcare Corp. (NYSE:THC): Tenet lost 3 cents per share last quarter on slightly higher revenue, in line with estimates, and the same as the 3 cent loss per share during Q2 of last year.

If you’re looking for an earnings-justified stock, look elsewhere. The company ramped up its full year earnings guidance to something between $810 to $875 million….. before any one-time charges. After those items are booked for 2009 though, Tenet thinks the bottom line will come in somewhere beteen a loss of $20 million and a gain of $60 million.

The market seems to think - and probably correctly - the charges won’t be a factor next year, if the recent gain is any indication. Just don’t be surprised if the GAAP numbers remain ugly for a few more months.

The St. Joe Company (NYSE:JOE): St. Joe lost 49 cents per share versus a loss of 23 cents per share a year ago. Don’t freak out just yet though…. 43 cents worth of the loss stemmed from one-time charges related to real estate losses and the transfer of its pension plan liabilities.

Those results may offer a glimmer of hope, justifying a strange amount of bullish op-ed coverage of the company lately. What investors need to recognize, however, is that St. Joe has been taking ‘one-time charges’ for devalued real estate losses for a couple of years now.

Real estate values will eventually recover, but it could be years before St. Joe returns to revenue levels of 2006 and earlier. The balance sheet is nice in the meantime, but doesn’t offset what I think may end up being a long string of ‘one times’.

Perot Systems Corp. (NYSE:PER): Of all five stocks being reviewed today, I think Perot may be the most meaningful barometer if true economic health…. no government stimulus, no fear of government regulation, and no resentment towards the company about a taxpayer-funded bailout. Perot, for better or worse, is just doing what it does.

As it turns out, what it did last quarter was of the ‘better’ variety. The company posted a profit of $0.25 last quarter, topping estimates of $0.24. Though sales were off by 11% on a y-o-y basis, earnings were better than the prior Q2’s EPS of $0.24.

Perot also cautioned that Q3’s (the current quarter) top line was likely to fall short of estimates. However, the company still expected to earn 23 to 25 cents per share, in line with analyst’s expectations of 24 cents.

What may have been overshadowed by the company’s attempt to reign in expectations was that Perot was not only consistently profitable throughout the heart of the recession (never had a losing quarter), but actually did better in 2008’s lousy economic environment than it did in 2006’s economic boon.

Perot is just a cash flow machine, and doesn’t get enough love from the market.

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