Comments on LU quarter:
1. Revenues - Sales were above even the most bullish analysts' expectations. This is the most important number for the quarter. For all of the "sturm und drang" about A/R DSOs and inventory, the real bear case suggested that the build up in these measures portended a drop in revenue growth. Wrong again Mr. Levy. Total sales for the fiscal year were up 20.5%, besting the high end of LU's guidance and easily making up for the light revenues in Q1.
2. Operating Margins - Lower than I would have expected. The company says it is a one-time phenomenon. I don't like it, but margins just aren't as important as they used to be (in investors minds).
3. Tax rate - I really don't see why Mr. Tucker believes coming in with a lower tax rate is "sloppy", or why he wouldn't give them credit for it. Tax rate is a product of careful management planning - one of the "five simultaneous equasions" LU uses to track its progress. It's a little like not giving credit if COGS fell because component costs were lower.
4. A/R DSO - Whether or not LU met its promises depends on whether you use average balance or end of period measures. Of course, I would have liked to have seen them exceed expectations unambiguously. As for converting a $600M receivable from Saudi Arabia that had been uncollected for 9 months into a vendor financing contract with interest payments, I say what took you so long. BTW this is not factoring a receivable - factoring specifically means turning a receivable over to a 3rd party for collections and accepting a % of the nominal value. What LU did with the Saudis was with the agreement of the customer, involved interest payments and was syndicated to a bank at full nominal value. Nonetheless, I would expect further improvement next quarter. In summary - minor league negative, not a big deal as long as the top line continues to come in.
5. BCS - Sales were flat YoY vs. a tough compare. No one should have been surprised about this. Every sell sider called this one. I do not understand Mr. Tucker's comment about BCS being dependable and Network Systems not being dependable. I would have put exactly the other way. I would like to see LU divest itself of Systimax and anyother part of BCS that is not pulling its weight.
6. Sales to Network Operators - Astoundingly strong - 32% growth. Strong domestic and strong overseas. Strong in voice, strong in data. Strong in wireless, strong in optical.
7. Recent trading - There was a little profit taking yesterday - also, NT's stunning 300bp increase in 2000 sales growth guidance took a little wind from the sails (N.B. I like NT, however, I think the recent love fest is a little over done, but I'll comment on that at a later date) The Nov. 11 analyst conference is coming. I believe this means contract announcements and new products. There is a real shift toward optimism amongst the sell side, and I expect this to be one of the best stocks on the board for the next 6-12 months. |
