>> I think that analysts are more concerned with how much of that $100 Million Ad expense will be factored into Q1 earnings. <<
For those who may have missed it, here is a work-up on that issue by Patrick Keeler ( who used to post here regularly). I've asked s. bateh to see if PK could use his sales info to shed some light on which of these scenarios might be developing for Q1.
Also, trying to remember from the cc if it is possible that KE might weight some of the ad expenses toward later Q's. Perhaps 10mm Q1 to get up and running, 14mm Q2 to accelerate a bit, 17-8mm for Q3 to build for Q4, and then really *crank the volume* for Q4? Where does it say that just because 100mm /4 = 15mm per Q means they have to spend it at that rate?
Anyway, here's PK's#'s...........
Oh, to answer the original question that Lumpy side stepped, no evidence that I am aware of that J2 or Buz #'s are in estimates at this time.
--------------
Subject: $100 MM a big deal?
Date: Tue, Mar 10, 1998 5:10 AM
From: TMF Keeler
Here are some projections to help clarify my last post. Assume ~10% revenue growth over
1997 and that $100 MM is added to normal SG&A spending. I will show the income
statement at 4Q97 Gross Margin levels:
Revenue............$2,000
Gross................$668
SG&A................($436)
R&D..................($90)
Operating Income.....$142
Interest...............$3
NIBT.................$145
Taxes................($51)
Net Income............$94
EPS = $0.33
Certainly 10% revenue growth, with no cost reductions anywhere in the business would not be
a good thing. In the three years I've followed this stock, I have never seen any indication
Edwards and Purkis are stupid enough to do this.
Here is again, the same revenue growth but with a 5 percentage point (15%) improvement in
Gross Margin (Iomega improved GM 14% last year):
Revenue............$2,000
Gross................$768
SG&A................($436)
R&D..................($90)
Operating Income.....$242
Interest...............$3
NIBT.................$245
Taxes................($86)
Net Income...........$159
EPS = $0.56
So with just 10% revenue growth and a 15% cost of goods reduction, IOM clobbers present
FY98 estimates. Did people think it was that easy? I didn't until I ran the numbers. Now lets
say IOM reduces SG&A expenses 10% before the $100 MM additional ad spending. Now
look at the income statement:
Revenue............$2,000
Gross................$768
SG&A................($402)
R&D..................($90)
Operating Income.....$276
Interest...............$3
NIBT.................$279
Taxes................($98)
Net Income...........$181
EPS = $0.64
Wow, $0.64 just by increasing revenues 10% and Gross Margin 15%; while spending an
additional $100 MM on ads, and reducing non-advertising SG&A expense 10%.
Now, lets look at 10% revenue growth, 5% Gross Margin growth, $100 MM in additional
spending on ads, and reducing non-advertising SG&A expense 10%:
Revenue............$2,000
Gross................$702
SG&A................($402)
R&D..................($90)
Operating Income.....$209
Interest...............$3
NIBT.................$212
Taxes................($74)
Net Income...........$138
EPS = $0.49
Well, I hope I've at least shown that $100 MM is not a big deal and that the Income Statement
has lots of places for KE and LP to make up the difference. I personally expect sales growth
much higher than 10%. Here is 20% revenue growth, 5% Gross Margin growth, $100 MM in
additional spending on ads, and reducing non-advertising SG&A expense 10%.
Revenue............$2,100
Gross................$737
SG&A................($417)
R&D..................($95)
Operating Income.....$225
Interest...............$3
NIBT.................$228
Taxes................($80)
Net Income...........$148
EPS = $0.52
Fool on :)
TMF Keeler
Patrick Keeler
A Fool and his money are soon partying |
