Hi Mike,
Today Briefing is talking about the same thing. Is this a trend like gorilla gaming a few years ago. Can you show us your results for the companies that you reviewed.
GGamer
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biz.yahoo.com
10:20AM Ahead of the Curve: Black Box (BBOX) 48.23 (-1.27) (-2.57% ) Black Box's earning release serves as a good example of the shifting market trend towards a focus on cash flow, instead of a single minded focus on earnings. Looking at earnings and revenue growth alone, Black Box looks only "okay," with revenues declining and earnings weakening. This type of picture usually does not justify a PE of 19 and a price/sales of 1.7. But the cash flow picture tells an entirely different story. Black Box generated as much free cash flow in this quarter as it did a year ago, on $26 million less in revenue. Gross margin didn't really change, at about 39% in each period. The implication is that they have dramatically trimmed operating costs. The table below summarizes this picture.
Line Item Q4 2002 Q3 2002 Q4 2001
Revenues, millions $153 $163 $179
Q4 Revenue Change -- -6% -15%
Net Income $14.8 $15.0 $16.9
Earnings 0.73 0.74 0.81
Income as % of revenue 9.7% 9.2 9.4
Cash Flow, millions $28 $19 $28
Stock Price $48.25 $37.77 (10/15/02) $48.39 (01/14/02)
What did Black Box do with the cash? Stock repurchases were $17 million, debt reduction was $10 million, and $1 million went to increase cash accounts. That extra million, however, will be used up with the dividend that Black Box intends to pay tomorrow, to shareholders of record on 12/31/02. The $0.05 per share dividend, the first ever, will be paid on approximately 19.4 million shares, for just under a $1 million expense.
Black Box will only have about $12 million in cash after the dividend - this quarter's cash flow was more than double that. Most Silicon Valley tech companies would have hoarded the cash flow onto the balance sheet, or hired more people, or started a new product line. Black Box bought shares, paid off debt, and paid a dividend. Things are different in Pittsburgh.
The management style of Black Box is to be saluted, in our opinion. Instead of the usual hubris from tech companies that they can conquer the world and need every penny of earnings to build new product or channels, Black Box clearly sees rewarding shareholders as a prime objective. We strongly believe that this trend, which is discussed more thoroughly in today's Stock Brief, is only just beginning. Companies that recognize it early will see it reflected in their stock prices. The market is pushing this stock lower today, on a "sell-the-news" short term play (because BBOX beat estimates by 0.02), but there are few tech companies whose stock price is at the exact same level it was one year ago today, on declines of -15% revenue and -10% in earnings. Black Box's focus on cash flow is the reason and illustrates how the market is shifting focus to valuing more than just raw revenue and earnings growth. - Robert V. Green, Briefing.com |
