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Strategies & Market Trends : Mr. Pink's Picks: selected event-driven value investments -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (11657)	10/15/1999 9:25:00 AM
From: TRIIBoy	Read Replies (1) \| Respond to of 18998

Herb Greenberg from The Street.Com blasts IDTC for funny business: IDT's Convoluted Earnings Release Tries to Get Investors to Ignore the Important Numbers By Herb Greenberg Senior Columnist 10/15/99 6:30 AM ET Talking about trying to make earnings look better than they really are: IDT (IDTC:Nasdaq) gets this column's chutzpah award. Not only does it keep the mirrors in plain view, but it gives detailed instructions on how the trick is played, leaving investors to decide whether they want to accept the company's version of last quarter's financial results as a mere illusion. The headline on the press release sets the tone by boasting a "record fourth quarter" and "strong market share gains." It's downhill from there for anybody taking the time to go line by line through what is an unusually complicated and highly convoluted earnings report. "I cannot believe that press release because you cannot really determine what core earnings per share were," says analyst Greg Miller of Jefferies & Co., who rates IDT a hold. Adds Vik Grover of Kaufman Brothers, who has a sell on the company, "I've never seen an earnings release like this." The company's spin, in the first paragraph, is that IDT reported a 29% gain in first-quarter revenue and earnings of 22 cents per share. Wow! Sounds great -- until you read the rest of the same sentence. Those numbers include "several" unspecified "one-time" gains and don't include several other unspecified SG&A costs. They also don't include the results of Net2Phone (NTOP:Nasdaq), in which IDT owns a 57% stake. It's generally not good when a company includes one-time gains or excludes costs without providing details of what those gains and costs were and how much they're for. (It certainly isn't clear in the press release, which is all the average investor has to go on until documents are filed with the Securities and Exchange Commission.) It's also not generally a good sign when a company, in its earnings press release, offers investors their choice of two income statements -- and steers them from the one reported in accordance with generally accepted accounting principles to a more watered-down version (which, in the case of IDT, doesn't include results from Net2Phone). That's just what IDT did, and for good reason: The GAAP report showed a loss of 15 cents a share, below analysts' expectations for a gain of 8 cents a share, rather than a profit of 22 cents a share. IDT's argument, in its press release, is that it would prefer investors look at the results of its core biz. No prob, but IDT can't have it both ways. Back when Net2Phone went public, IDT execs were on TV trying to convince investors that they should consider buying the lower priced IDT instead of the expensive Net2Phone because as a 57% investor in Net2Phone, IDT was a cheap way to buy into Net2Phone. "They want credit from owning Net2Phone, but they don't want to accept the losses," grumbles one short-seller. The income-statement shell game aside, IDT's basic biz, which includes selling prepaid phone cards, doesn't look so great. Gross margins are on the wane. Most telling was that the fastest growth -- 55.6% -- came from non-IDT-branded cards, which have meager 3.5% gross margins; that compares with an 8.9% gain of IDT-branded cards, which have margins of 26.9%. There were similar examples in other parts of the company, which suggests that in order to deliver that stunning revenue growth, IDT all but gave a good chunk of its biz away. "The fact that they have a great top line is irrelevant," Miller says. "You and I could create a company that puts up $200 million with zero margin." Adding to the confusion, IDT held a brief conference call this morning that lasted all of about 15 minutes. No questions were permitted. Company officials left the impression that they had more important things to do. Oh, and finally, IDT made its debut here in a Hostile-React-O-Meter-spinning column that questioned a $25 million loan from IDT to Lermer Overseas Telecommunications, a company run by a close friend of IDT CEO Howard Jonas. Lermer, however, was dissolved as a corporation in New York in September 1997 for failing to pay the state franchise tax, which means IDT made a large loan to a company that technically didn't exist. IDT said if it didn't reincorporate, the loan would be called. In the conference call Thursday, IDT said the loan had been repaid. IDT officials didn't return my calls Thursday.