Late yesterday, fellow RealMoney columnist Ken Goldberg put up a query on Columnist Conversation, asking if the current environment reminded anyone of October 1987. That one kept me up all night. Not even close, I'd say. It's a much different environment now -- the economy is in much worse shape, valuations are not as lofty, and we face a whole bunch of headwinds that we did not in 1987. The 1987 crash was primarily about valuations; this correction is about the economy and trouble in Europe. And at this writing, it's still a correction, and not a crash. The only similarity I see is in the number of points the DJIA dropped -- 508 on Oct. 19, 1987, and 513 yesterday -- but that's an apples-to-oranges comparison. The 1987 one-day drop was 22%; yesterday's was 4.3%. It's still painful, though, because we don't know what's coming next.
There certainly was not much to be happy about during yesterday's action, but there were a few surprises.
The beating that Huntsman (HUN) took, following what appeared to be a decent quarter, was astonishing. Shares were down nearly 31% on the day. Huntsman reported second-quarter revenue up 25%, to $2.934 million, and flat net income of $114 million, or $0.48 per share, vs. the same quarter last year. Excluding non-recurring items included in last year's second quarter, net income was up 56%. The company beat consensus revenue estimates of $2.77 billion, but missed on earnings by $0.01, and subsequently lost nearly one-third of its market cap in a single trading day. The headlines cite higher costs as the reason for the drubbing, but by my calculation, the gross margin actually improved to 17.07% vs. 16.43% last year and was just slightly below the sequential quarter's 17.17%. After the damage done yesterday, shares now yield 3.2%.
Some of the only green on my screen yesterday came from two unlikely sources:
1. Denny's (DENN), up 3.4%; and
2. Midas (MDS), up 7.9%.
Both reported results this week.
Denny's reported that same-store sales were up 2% for the second quarter and slightly increased full-year 2011 guidance for same-store sales from down 2% to up 1% to down 1% to up 1%. Revenue rose 0.6%, to $135.9 million, and net income rose 49%, to $8.1 million. The company met earnings expectations of $0.08, and was slightly ahead on expected revenue ($135.1 million). Denny's continued whittling away what was once a mountain of debt that now stands at $241 million, down from $264 million last year.
Meanwhile, Midas, which has been a disappointing performer, reported that second-quarter revenue fell 3.2%, to $47.7 million, but net income jumped 163%, to $2.1 million, or $0.15 per share, ahead of the $0.13-per-share consensus estimate. Part of the revenue drop was due to the continuing refranchising of former company-owned stores. Same-store sales at U.S. stores were up 2.2%, and it's nice to finally see some signs of life at this company. For the rest of the year, the company has offered EPS guidance in the $0.18 to $0.22 range, which, if achieved, would put full-year 2011 EPS somewhere between $0.39 and $0.43.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider DENN and MDS to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.