Mad Money

This Quarter's Best and Worst Reports

A Tale of Two Earnings Quarters

A company’s quarterly report delivers more than just a number or two for judging stocks. “Earnings per share beat Wall Street expectations. Revenues fell below previously stated guidance.” No doubt these figures are important. But in order to make a better-informed decision on whether to buy or sell, investors need the whole story.

That’s why Cramer is always telling viewers to review the conference call that accompanies each report. It’s the only way to tell whether a company’s performance actually was good or bad. On Tuesday, he dissected the best and worst calls of the most recent quarter – Colgate-Palmolive and Textron – to show viewers how it’s done.

Everything that could have gone right for Colgate did. The company kept raw costs under control despite much higher inflation, and now is in even better position because commodity prices across the board are falling. A stronger U.S. dollar cut into net sales – 70% of revenues come from overseas – but still worldwide sales grew organically, volume growth was up and price increases were pushed through. Also, Colgate introduced new products and took market share while most competitors were playing defense. Then management announced that gross margins should grow faster than expected.

See that near-flawless execution? You would have missed that with just a quick look at Colgate’s EPS. You also would have missed that customers stayed loyal even though they had less money to spend on this name brand, something Cramer gleaned from the conference call.

Textron’s quarter, on the other hand, tells a different tale. The company’s aerospace division – think Cessna and corporate jets – saw sales decline and orders barely beat out cancellations. The finance division’s non-performing assets grew 77%, and credit losses are expected to be two to four times worse than in past downturns. The cyclical manufacturing business, which supplies the automakers, lost 20% in volumes and anticipates another 20% to 25% loss in 2009. And to top it all off, Textron has money problems. The company can’t get the short-term financing it needs and carries a significant amount of debt. Enough debt that Cramer doubted that the dividend payment would be made.

Lastly, Textron’s management has lost credibility. Last August, they said they’d never again drop to the levels seen in 2002-2003, but here they are anyway.

Both Colgate and Textron reported before Thursday’s opening bell. CL’s up 3% since then, while TXT is down 40%. Cramer said he expects those trajectories to continue.

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