SCI SYSTEMS INC. (SCI) 39 5/16 +4 5/16. This diversified electronics manufacturer managed to beat Wall Street estimates last night, but only after the company had already pre-announced a fiscal Q3 earnings shortfall. Back on March 25, the company guided estimates for Q3 lower due to poor market conditions in the personal computer area and in Europe. At that time, SCI was projected to earn $0.50 a share, same as in the year-ago period. In typical Wall Street fashion, firms downgraded the stock and reduced earnings expectations as the company said that it expected revenues and earnings for the period to be in the "upper single-digit percentages." Hence, when SCI reported a fiscal Q3 net of $0.48 a share, three cents ahead of the revised First Call estimate, it was really two cents below the original mean estimate. No big deal, however, as Wall Street has already forgotten how much the company was expected to originally make, and thus is rewarding SCI by upgrading the stock. In fact, the stock is now $4 to $5 higher than it was when the company warned last month. Granted, the earnings miss was not as big as had been initially anticipated, but companies should not be encouraged to low-ball earnings in order to create a buying frenzy when in reality, sales activities are nothing great. After all, revenues in the latest period were off 5.3% from a year-ago and 7.8% lower on a sequential basis. Doesn't appear that this is anything good to be clapping about.
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