I can be accused of getting wordy lately, but here goes with another thought.
I think one of the reasons FSI's stock is doing reasonably well, even though they lost money in the third quarter, is company management. In my opinion they did the "right thing" in managing a difficult situation of declining orders last year and the subsequent loss of sales this year. This situation "peaked" in the third quarter just past, when their sales were at the lowest point and they lost money.
A summary "picture" of management's action (some management experts might say inaction) can be seen by looking at the first portion of their third Quarterly Report. The items to look at are: sales, cost of goods sold, gross profit; selling, general and administrative expenses; and research and development expenses.
Management knew sales would be much lower than a year ago. A summary can be made as follows: In the following numbers, rounding is done for sake of illustration. First of all, sales for FY-97 were 51M - for FY-96 67M - a shortfall of 16M. The cost of goods sold was less in FY-97 (as to be expected), the difference being 6M. This meant a shortfall of 10M in gross profit for FY-97 compared to FY-96. Again rounding to 22M shares, that is a shortfall of 45 cents per share compared to FY-96.
How to minimize or eliminate the shortfall to keep earnings up, that is the management problem. Many managements would cut marketing and R&D expenses to shore up the bottom line, FSI management did not. Selling and G&A expenses were 14.8M in FY- 96 and 14.4M in FY-97. This shows they did not cut their selling (marketing) expenses. R&D expenses were 10.2M in FY-96 and 10.8M in FY-97, showing a small increase. I like that - it shows management was willing to continue to invest in R&D (and also marketing) and not give in to the temptation to make the "bottom line" look better for Wall Street.
So where is FSI today? I think they are in great shape. They have brought, on-line, additional capacity in the last two years to be ready for the upturn. They have "cash in the bank" for flexibility in responding to new situations. They have continued to invest in R&D and marketing through the bad times to be ready for the good times. They continue to get awards for being a top notch supplier, and are still winning prestigious awards like the recent 2M award.
As I said in the beginning of this message, one man's opinion.
Don W. |
