Sifco Industries (NYSE AMEX:SIF)

Premium alert sent to members this morning.

In our premium email alert yesterday morning we discussed our disappointment with GeoSpecial Sifco Ind. (NYSE AMEX:SIF) first quarter 2012 results:

"On a negative note, one of our GeoSpecials reported weak first quarter numbers, something that has not occurred for one of our GeoSpecials for some time now. See SIF first quarter financial results. We are awaiting the release of the 10Q to perform more due diligence on what went wrong in the quarter."

Hidden Clue reveals that the 2012 first financial results were strong:

After further due diligence and reading through the 10Q filed in yesterday's trading session, it turns out the quarter was weak, as we originally assumed. We noticed that the 2012 first quarter SG&A expense included an intangible asset amortization charge of $815,000 vs. $57,000 in the 2011 comparable quarter. The charge was due to an increase in customer relation expenses in connection with a 2011 acquisition. The GeoTeam, as well as most savvy investors, would add back this charge to derive a Non-GAAP/adjusted EPS figure. Performing this calculation would translate into Non-GAAP EPS of $0.32 as opposed to the reported number of $0.22 and would equate to 39% EPS growth for the quarter. The 2012 second quarter revenues were also negatively impacted by some temporary inventory adjustments from one if its customers.

We will continue to code SIF as a GeoSpecial. However, we are mildly concerned about the upcoming 2012 vs. 2011 second quarter comparison. SIF reported $0.38 in last year's second quarter. We do anticipate that the acquisition consummated in 2012 will be fully integrated into operations during SIF's fiscal 2012 second quarter ending March. However, we are not sure if SIF will be able to obtain 30% EPS growth during the 2012 second quarter. The company provided limited commentary in the first quarter 2012 press release, making it hard for us to accurately gauge the potential for second quarter EPS.

We will contact the company and urge them to issue Non-GAAP financials in upcoming press releases. We normally view the decline in SIF shares as a buying opportunity, but will be cautious because of the tough second quarter 2012 comp and the fact the company is not being overly transparent in its press releases. We still hold shares in SIF and do believe they will regain strength as confusion over the first quarter results abates.

In other news, GeoSpecials Taro Pharmaceuticals Ind (PINK:TAROF) and Aceto (NASDAQ:ACET) reported strong earnings.

Also, Sed Intl Holdings (NYSE AMEX:SED) reported a huge quarter on a temporary increase in margins.  Interphase (NASDAQ:INPH) reported a dismal quarter. For more details see The GeoTeam's U.S. Earnings Beats/Misses section of our blog. (password GEOTEAM)

Disclosures: Long SIF; Initiated Long trading positions in TAROF, SED; Initiated Short Trading position in INPH

This is a review of our SIF GeoNugget.

GeoNuggets® - Quick Check List Highlighting Undiscovered Opportunities

On November 28, 2011 we coded SIF as a GeoSpecial @ $19.25 (via a premium member email).

Sifco Industries (NYSE AMEX:SIF)

Company Description: engaged in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers.

Data Ended 12/7/11

• Price = $18.84
• Trailing EPS = $1.40
• GeoTeam fiscal 2012 EPS Estimate= $2.00
• P/E based on Fully-Taxed Trailing EPS = 13.45
• P/E based on Fully-Taxed GeoTeam fiscal 2012 EPS Estimate= 9.42

Criteria Check List

SIF Meets 8 out of 10 of our most important GeoBargain/Special® Requirements

(Very Important note: Investors should be aware that SIF's operations could be negatively impacted by U.S. government defense budget cuts. Conservative investors may want to see how the U.S. debt ceiling play out before considering this story)

	Requirement	Comments
	Recent 52-week High(generally within 3 months)	Reached a high of $20.05 on 11/21/2011
	Strong EPS Growth Rate	As of 2011year end
Yes	> 30% EPS Growth Rate	4th Qtr. 2011 EPS increased 57.7% Year end 2011 EPS grew 40%
Yes	GeoPowerRanking (GPR); Number of consecutive quarters that EPS is expected to grow at least 30%.	3
	10% Revenue Growth	4th Qtr. 2011 revenue increased 34% Year end 2011revenues increased 28%

To see more requirements, reasons for optimism, as well as potential valuation, see the rest of our December 7, 2011 GeoNugget.