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What happened to Rogers Corp?

Back in October, Rogers Corp. (ROG) boosted its outlook for 3rd quarter earnings and its stock moved up nicely. At the time, they indicated they expected earnings, excluding items, of 44 cents to 48 cents a share for the third quarter, up from its prior view of 32 cents to 35 cents a share. The chart started looking pretty good and the TradeRadar software flashed a BUY signal (read the original post).

Actual earnings were reported late last week and the results exceeded raised expectations. So why did the stock take a dive? Management pointed to Durel.

So what is Durel? The Durel Division manufactures Electroluminescent (EL) backlighting systems for wireless telecommunications, portable electronics, automotive, signage and timepiece applications. One reason for this quarter's good earnings is an unexpected $3.6 million increase from forecasted sales of Durel products related to mature cell phone programs. This one time benefit of those Durel sales totaling $1.7 million in pre-tax profits, or $0.06 per diluted share, is not projected to repeat in the future. Therein lies the problem. But more on that later.

First, the numbers --

Third quarter 2007:
- Sales: $ 109,626
- Net Income: $ 8,950
- Net EPS: $ 0.51
Third quarter 2006:
- Sales: $ 121,588
- Net Income: $ 17,179
- Net EPS: $ 0.99

As can be seen, year-over-year numbers look pretty bad so let's look at income over the last five sequential quarters.

- 3Q06: $17.2M
- 4Q06: $12.7M
- 1Q07: $9.5M
- 2Q07: ($4.3M)
and then this quarter, 3Q07: $8.95M.

Sequentially, we see income declining until Rogers posts a loss in the second quarter of this year. The third quarter, just reported, represents a return to profitability and, according to the TradeRadar software, a confirmed reversal.

Forward guidance --

Robert D. Wachob, Rogers' President and CEO, provided the following comment:

"We believe that fourth quarter Durel sales will return to the lower forecasted levels, compared to the higher amounts experienced in the third quarter. Therefore, as we look to close out 2007, I expect fourth quarter sales to be in the range of $99 to $103 million with net earnings per diluted share of $0.38 to $0.42 including anticipated pretax charges related to the second quarter restructuring of approximately $1.1 million."

So, even after removing the effects of the one time gains related to the Durel division, fourth quarter guidance represents a modest decrease over the third quarter. This was a disappointment to those investors who were hoping the Rogers turnaround would accelerate. Still, investors can take solace in the fact that the company seems to be firmly back in profitable territory. Let's hope the company can build on this somewhat improving picture.
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