Thought one of the reasons for the near-panic last night was that the initial reporting of the company's financial performance was so negative in tone - "IOM is down - .07 vs. 13" - the only comparison being made to the 4Q97 EPS. This morning's Reuter's article at least gets the key message right - this Q's performance is a turnaround and better than expected. For that, we can forgive the reporter's thinking Jodie is a she.
I think the reorganization makes sense. In prior posts on other boards, I've been very critical of Iomega's minimal marketing efforts outside the United States, particularly in Africa and South America. Mr. Glore's reorganization consolidates the company's marketing efforts and, by making himself head of the division, clearly signals the importance marketing will have in the future. I don't see this, as some do, as meaning concentration on OEM sales. To me it means that all opportunities will be pursued in an integrated manner.
Also, Briscoe and Forsyth's resignations don't worry me. Glore's reorganization changes Iomega from 3 small empires to one company. Removing key functions from the emperors' control clearly signals a lack of confidence, so the resignations aren't surprising. I know that Wall Street hates organizational changes, but Glore is much too experienced an executive to stir up the pot merely to prove he owns the spoon. The reorganization will make the company stronger.
So, of yesterday's "bad" news, the only item that concerns me is Glore's statement that next quarter will be a wash. As a heavy IOM long, I wish that he had just kept quiet about next quarter, because his statement will hold prices down for the next 4-5 months. I expect 1Q99 to be a strong sales quarter, and without redirection of the profits, had expected an .11 or .12 EPS quarter. Glore apparently plans to use some or all of this profit either to launch new products or ensure the acceptance of current ones (i.e., Clik!).
Glore's statement, IMO, ensures that IOM will essentially be "dead money" for another 4-5 months. To me, the upside potential of IOM is contingent on institutional participation increasing substantially from the present 9 percent, but I think it will take a couple of consecutive profitable quarters, or the clear indication of massive future profits, to get the institutions back in.
Now, Glore is slick enough to make himself and the company look good by setting a low expectation and then exceeding it. 1Q99 sales will be strong enough to let him do that - decide how much to invest in the future, and how much to allow to fall through to the bottom line. Glore will ensure Iomega turns a profit, but I don't think he has done us any favors as investors, particularly short-term.
On the other hand, I had planned to stay in IOM even if EPS was only .02 or .03 and the price stayed in the $7 to $10 level, because 1999 as a whole will be such a tremendous year for Iomega. My prediction for 1999 EPS is .70, regardless of what Glore does to the 1st quarter. I'll continue to watch developments closely, but in the end, staying in IOM requires having confidence that management is making the right moves, even if it means minimizing next quarter's profits to improve the future position. I do have confidence in Glore - until now, his moves have been right on the mark. I question his making a prediction for next quarter - time will tell whether that was a smart move or not.
For me, the sad part is that the situation gives some fuel to the shorters who have been slamming the stock so hard for the past few months. I thought .07 would shut them up. Still, if they succeed in driving IOM below 8 again, I'm buying more.
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