Earnings Releases: Are They as Bad as They Seem?

Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Earnings releases - it’s that time of the year again! This is when stocks plummet, stocks soar, and companies make names for themselves. Many investors will be looking for quick money, while others are looking long term - but nearly all investors are looking for an opportunity.

Google (NASDAQ: GOOG) had amazing results this quarter in earnings. With the release of the news, shares soared 6%. Google changed its approach with ads to a "Decrease the money per click, but increase the amount of clicks" approach. Apple's (NASDAQ: AAPL) main focus of their call was primarily about Google's attempts at innovation.

Google seems to be in better command of the mobile platform now than ever before. Very few tech companies will survive the transition to mobile, and Google will be one that should thrive. The Motorola acquisition cost $12 billion, but there was $3 billion in cash, $2 billion of tax savings, and they sold off another part of the business - meaning they only paid about $3 billion for the phone acquisition. Rumors have it that Google could acquire twitter in the future. It appears as though Google's moat continues to widen. 

Apple posted records in many categories this quarter. Revenue and net profit were two record breaking categories the company seemed to stress. $54.5 billion in revenue was posted, along with $13.1 billion in net profit. Although net profit wasn't hardly an increase in percentage, revenue was nearly 18% higher than ever before. International sales accounted for 61% of revenues. The company sold 10 million more iPhones, 7.5 million more iPads, 1.1 million fewer Macs, and 2.7 million fewer iPods than in the year-ago quarter. These numbers account for the 75 million iOS devices sold throughout the quarter. The company also declared a cash dividend of $2.65/share. However, there were many concerns with Apple's earnings as well. There were, however, some companies that didn't perform this well. 

Coach (NYSE: COH) saw shares fall 14% after second quarter results showed weak sales in Europe and the United States. This should be a temporary crash. News was bad, but it was no surprise that they had a weak quarter. Coach didn't resort to discounted prices like many retailers have, so they still have a couple un-used bullets. Coach discussed being more of a "lifestyle company" that might frighten investors. If companies aren't careful, brands are often diluted by doing this. If the company approaches this carefully, without going overboard with belts, shoe laces, and other miscellaneous items, it shouldn't be an issue. Coach has great management, a durable brand, and industry leading margins. Coach is a long term story with the recent expansion in Asia and men's apparel. 

McDonald's (NYSE: MCD) showed a 2% increase in revenues. Management did say, expect January to be in the negative for comps. This would only be the second time in a decade that they have showed negative comps. Despite this news, McDonald's still has a wonderful business model. Low comps is not the businesses fault, it’s weakness in Europe that provides 40% of their revenues. With Wendy's and Burger King releasing better products than before, this presents a short term problem for McDonald's. However, in the long term it doesn't appear that either can keep pace with McDonald's. With their business model including owning the real estate and buildings, it’s a cash machine. Worst case scenario is they have butted up against the "ceiling" and simply continue to turn out huge cash, great dividends, and buy back shares of the company. For most investors, that's good enough.  

The Bottom Line...

Tech companies such as Google and Apple are showing promise with their quarterly releases. It’s easy to see their success, and why their stocks should respond in a positive manner. As for companies like Coach and McDonald's, it might be harder to see but is probably not as bad as it seems. McDonald's might be discovering how true the adage "Cash is King" really is. Long term investors should love some of the opportunities presented.  


tlwofford has no position in any stocks mentioned. The Motley Fool recommends Apple, Coach, Google, and McDonald's. The Motley Fool owns shares of Apple, Coach, Google, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure