Friday, January 8, 2010

Intraday action

Stocks are mixed today, with the DJIA slightly in the red and the Nasdaq up half a percent.

Notable among the losers today is rubber and plastics company Rogers Corporation (ROG), down almost 9%.

Rogers announced that 4th quarter 2009 revenues will com in slightly above previous guidance, and they did not update previous q4 earnings estimates. They took what for them is an unusual step and gave guidance for 2010 revenue and earnings.  The revenue guidance of $320million might be conservative, but it is nonetheless below Wall Street's consensus estimate of $332million.  The bigger surprise was for earnings per share to come in at about 1.00 for 2010, versus the street expectation of $1.48.  The company cited $5million in higher employee expenses and $3million in higher taxes that will contribute to the lighter earnings:

"The Company has not historically provided annual guidance, but in light of the unprecedented economic climate of the last year it believes it is prudent to provide initial guidance for 2010. The Company believes 2010 sales will be about $320 million, an increase of approximately $28 million over 2009. At these sales volumes under 2009’s expense structure, earnings per share would have been expected to exceed $1.50 per share. However, the Company estimates it will incur incremental expenses in 2010 compared to 2009 of approximately $5 million due to the resumption of compensation increases and incentive programs for employees, which were suspended in 2009 due to the downturn in the business. All other expected cost increases are anticipated to be balanced by planned efficiency improvements. Additionally, the Company expects an increase in tax expense amounting to approximately $3 million, due to the non-recurrence of certain one-time adjustments that benefited 2009 and an increase in tax rates in certain Asian jurisdictions for 2010. Therefore, the Company’s 2010 full year diluted earnings per share is projected to be in the range of $1.00.

We see uneven signs of recovery around the world. This causes us to remain cautious and continue to keep a tight rein on our expense levels. However, we have spent considerable effort over the past several years to develop our people and in order to remain competitive we must ensure that we retain and properly motivate our employees. As a result we believe it is necessary to resume merit increases and annual incentive plans in 2010. Our results in the third quarter make it quite clear that earnings are highly leveraged to sales. If the world economies and our customers in particular do better than projected, then the resulting incremental sales increase could cause earnings to rise very quickly. Although 2009 was a very challenging year, the team at Rogers met those challenges and we ended the year with sales rebounding from the depressed levels of the first half of 2009. We are well positioned at the beginning of 2010, our markets have stabilized, and we are poised to take advantage of any growth opportunities that arise.”

This "giveback" in terms of employee compensation should have been relayed to investors in a better manner, so as not to surprise like this.  2010 earnings recoveries for many firms might be muted by similar "givebacks" to employees who did not see raises or promotions in the past year.

Copyright 2010 AlphaNinja

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