Kev, I'm going to repost a message that I put on the Alanco board on AOL a
couple of days ago. See what you think.
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Ok...grab a cup of coffee and try to follow my ramblings. Feel free to
comment/refute/dispute anything that I put forth in this message.
Last quarter was *not* that great for ALAN, I'll admit that. The press release
after the annual meeting reported revenues and earnings after a 6 month period,
cleverly sweeping under the carpet the fact that revenues *decreased* in the
2nd Q vs. 1st Q.
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$3,435,488 (6 months) - $1,756,871 (1st Q from 10-Q report) = $1,678,617 (revs for 2nd Q)
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The question that I ask myself is, "Where do we need to go to achieve management's
projections for this fiscal year?" If you remember the press release from June 27,
1996, Management predicted revenue to triple from $4.9 million in 1996 to $15.18
million in 1997, with earnings of $0.08 per share. 1998 will increase to $42.29
million($0.56/share). 1999 projects to $90.65 million ($1.34/share).
While $3.4 million for the first 6 months is a vast improvement over $4.9 million
for the *entire* year last year, it is still a l-o-n-g way away from management's
projection of $15.18 million. How do we get there?
Let's take apart the numbers...
The press release after the annual meeting in January stated that revenues for the
Fry Guy unit were $92,500 in Oct., $242,000 in Nov., and $572,000 in Dec. for a
total of $906,500 for the quarter. By my math, that would leave us with revenues
of $772,117 for the rest of the company's operations for the 2nd Q.
PROJECTIONS
*Let's ASSUME that December's Fry Guy numbers were not a fluke (i.e. - they
reflected real growth and not just an anomaly in a billing cycle).
*Let's ASSUME zero growth for all other parts of the company and that the
$772,117 in 2Q will be repeated in 3Q and 4Q.
-IF revenues for Fry Guy remain FLAT with December's numbers (i.e. $572,000 /
month), then TOTAL revenues for the year will end @ $8,411,722. Nice, but still
a long way from $15.18 million.
Let's take it apart some more...
Fry Guy revenues increased by $330,000 from November to December. IF that sort
of growth is *sustainable* (actually, if Fry Guy can increase revenues by
$320,000 PER MONTH for the next six months), we would get to revenues of
$15,131,488 for the year. Check my math...
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$ 892,000 (Jan. Fry Guy=Dec.+$320,000)
$1,212,000 (Feb. = Jan.+$320,000)
+$1,532,000 (Mar. = Feb.+$320,000)
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$3,636,000 (Total revs. for 3Q Fry Guy)
+$ 772,000 (Flat revs. for rest of company)
-----------
$4,408,000 (Total 3Q Revs. for ALAN)
===========================================
$1,852,000 (Apr. = Mar.+$320,000)
$2,172,000 (May. etc.)
+$2,492,000 (Jun. etc.)
-----------
$6,516,000 (Total revs. for 4Q Fry Guy)
+$ 772,000 (Flat revs. for rest of company)
-----------
$7,288,999 (Total 4Q Revs. for ALAN)
===========================================
$3,435,488 (Revs. for 1st 6 months)
$4,408,000 (projection for 3Q)
+$7,288,000 (projection for 4Q)
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$15,131,488 (Total revs. for YE-June97)
===========================================
Now, here comes the hard part - Earnings. When the actual 10Q for the 2nd quarter
comes out (and can be accessed on EDGAR), we should have a better idea where
earnings are going. But until then, anything is a guess because as the revenues
for Sgt. Fry Fun Foods become a larger and larger portion of the company's total
revenues, it appears that ratio of "Direct service and cost of goods sold" to
"revenues" seems to be decreasing.
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1994 (service and cost of goods)/(revenues)=108.70%
1995 = 79.92%
1996 = 61.58%
3 months ending Sept 96 = 53.86%
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More assumptions...
1) ASSUME "Selling, general and administrative" expenses continue to run at a
rate of $1 million per quarter. (This will probably increase during the year)
2) ASSUME "Depreciation and amortization" continues to run at a rate of
$250,000 per quarter.
3) ASSUME (and this is a big one), that the ratio of cost of goods vs. revenues
CONTINUES at a 54% clip. Since I am not aware of the details behind the Sgt.
Fry deal with Wal-Mart and Salubre, this is a big assumption. However, if the
trend continues, this ratio may actually go down some more (thus increasing
gross margins).
IF the 3 above assumptions hold true AND my (actually, management's) projections
about revenue hold true (now I'm WAY out on a limb), THEN we can predict the
following...
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$4,408,000 = 3Q revenues projection
X .54 = Assumption #3
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$2,380,000 = "Service and cost of goods"
========================================
$4,408,000 = 3Q revs
-$2,380,000 = "Service and cost of goods"
-$1,000,000 = Assumption #1
-$ 250,000 = Assumption #2
-----------
$ 777,680 = Profits from operations
/33,364,278 = Shares outstanding
-----------
$ 0.023 = earnings per share for 3Q
========================================
$7,288,000 = 4Q revenues projection
X .54 = Assumption #3
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$3,935,520 = "Service and cost of goods"
========================================
$7,288,000 = 4Q revs
-$3,935,520 = "Service and cost of goods"
-$1,000,000 = Assumption #1
-$ 250,000 = Assumption #2
-----------
$2,102,480 = Profits from operations
/33,364,278 = Shares outstanding
-----------
$ 0.063 = earnings per share for 4Q
========================================
Obviously a lot has to happen to even come close on these projections.
Also note that we would be relying heavily on the 4th Q (April thru June)
to bring profits to the company for the year. We start the 3rd Q with an
earnings bogey of $836,000 for the first 2 quarters. Profits of $777,680
for the 3rd Q still doesn't make us profitable for the year. Profits of
$2,102,480 for the 4th Q puts us up $2,043,778 for the year (or $0.061 per
share) under this scenario. Not bad at all. It's not the 0.08 that
management predicted last June, but as I said before, gross margins may
increase as Sgt. Fry revenues increase.
I realize that I'm blowing as much smoke as management in this posting,
but I'm merely setting some guidelines for where we must be when the next
earnings report comes out to be on target (according to management). If we
can earn $0.02 per share during this quarter, I will be buying ALAN with
both hands. |
