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Pastimes : Home on the range where the buffalo roam -- Ignore unavailable to you. Want to Upgrade?

To: McNabb Brothers who wrote (11483)	3/13/2001 11:33:13 AM
From: T L Comiskey	Read Replies (1) \| Respond to of 13572

a view from the porch for $ Nut fans.... Indigestion Ahead for Krispy Kreme? By Cintra Scott March 8, 2001 Rolling in Dough COULD LIFE BE any sweeter for Krispy Kreme (KREM) investors? On Thursday morning, the beloved doughnut maker beat earnings expectations and raised future guidance. Those tasty treats came just half a day after the company said its young stock would join the venerable New York Stock Exchange. Can joining the Dow Jones Industrial Average be far behind? As tech valuations crumble, investors have learned to love the promise of fresh, hot doughnuts now. Since they began trading less than one year ago, Krispy Kreme shares have seen some volatility, but they're still trading 269% higher than their $21 initial-public-offering price. Contrast that to a hot technology IPO like that of, oh, Red Hat (RHAT), say, whose shares are 7% off their split-adjusted offering price. Now, as any true Krispy Kreme aficionado will tell you, the company’s doughnuts are unparalleled when they’re fresh from the oven — and quickly turn lifeless and leaden as they cool. Krispy Kreme shareholders have reason to worry that their hot, tasty stock could also congeal in pretty short order. On April 5, 7.4 million shares will be released from their IPO lockup agreements. To put that number in context, only 5.75 million KREM shares are currently trading. Lockup agreements are meant to protect a young stock in its early days of trading. Under typical contracts, IPO underwriters require pre-IPO shareholders (company insiders and such) to hold on to their newly public stock for six months — or in Krispy Kreme's case a full year. The restriction is meant to help a stock stabilize before heavy insider selling can take place. That means that Krispy Kreme insiders who might be hungry to cash in on a 223% gain simply haven't been able to. You can bet their calendars have April 5 marked. As you would imagine, the flood of shares unleashed by a lockup expiration often drives stock prices down sharply. In Krispy's case, the lockup expiration will increase the supply of shares available for trading by 128%. Bear in mind, of course, that just because insiders are allowed to sell a stock doesn't mean they will. Still, sometimes just the perception that selling could occur is enough to drag a stock down. For a taste of what could happen to Krispy Kreme come April, consider the events of just two months ago. On Jan. 5, the company announced a secondary offering, and the stock dropped 11% on the news — to $68.13 from $76.44 — in a single trading session. When the secondary offering priced on Jan. 30, shares fetched even less: $67 a pop. Krispy Kreme ended up selling 200,000 new shares at the same time franchisees and other insiders sold 2.1 million. That increased the number of publicly traded shares by 40%. But now the stock is hot once again. The reheating really started when a stock split was declared on Feb. 13 (effective March 19). And Thursday's happy earnings surprise certainly stood in sharp contrast to all the unhappy confessions being made by tech companies these days. The company said its fiscal fourth-quarter profits had more than tripled on a 39% increase in revenue. Per-share profits of 30 cents handily beat analysts' consensus expectations of 25 cents. For the coming year, it raised its earnings forecast to $1.38 a share, up from a forecast of $1.30 in November. Take that, Intel (INTC). Still, the lesson of January suggests that April could be cruel. As we mentioned, the looming April 5 lockup expiration releases 7.3 million shares — more than three times as many shares as the secondary offering. Then again, maybe the stock will split again, join the S&P 500 and prove that doughnuts really do grow to the sky.