Oh, now i get it: Dow Jones Newswires -- January 23, 1998
Iomega Down As $100M Ad Gamble Throws Scare Into Investors
By Maria V. Georgianis
NEW YORK (Dow Jones)--Iomega Corp.'s (IOM) gamble to spend up
to $100 million more on advertising this year than last year has led analysts
to question whether the expense could hurt earnings.
That news is being cited for the recent plunge in Iomega's share price.
NYSE-listed Iomega's shares were recently off 4, or 31.4%, at 8 3/4. The
composite volume was 31.1 million shares, compared with average daily
volume of about 5 million.
The company told analysts of the dramatic increase in advertising spending,
which is at least three times as much as previous levels, during its
fourth-quarter conference call Thursday after the market close.
The ad campaign includes four spots during Sunday's Super Bowl and
increased print, radio and other television commercials.
Iomega's new ad strategy raises concern as to whether there's a slowdown
in the growth rate for the company's removable-storage products. The
company's unsold inventory has risen to six to eight weeks from the typical
four to six weeks, Iomega told analysts during the call.
The company's selling, general and administrative expenses will certainly
rise on account of the increased ad spending, and earnings could be hurt if
the advertising doesn't work.
Needham & Co. analyst Glenn Hanus said he cut his rating to hold from
buy and lowered his 1998 earnings estimate to 48 cents a share from 56
cents on account of the heightened advertising. The consensus estimate of
five analysts surveyed by First Call Corp. is for 1998 earnings of 62 cents a
share.
"They raised the bar on the risk factor because they're going to turn up the
volume of advertising," said Emerald Research analyst Joseph Besecker.
"They're making a fundamental change in midstream. Intuitively, it's certainly
confusing - that's why people are selling the stock."
Besecker said the plunge in the stock is more related to questions about the
company's advertising plans than to Iomega's below-consensus
fourth-quarter earnings.
The company reported earnings of 14 cents a basic share, compared with a
First Call consensus estimate of 15 cents. |
