Though Outdated Here's Another From Same Source:
>>This is an excellent article for those who follow this company.
They even make detailed mention of their management shakeup.
What's also neat is there's also some insight provided about the
unusual trading volume that occured in Sept. Enjoy. Peter.
Monday -- October 13, 1997
Praegitzer's failure to communicate
Struggling company learns the hard way to give
Wall Street the bad news
Dan Mcmillan Business Journal Staff Writer
Praegitzer Industries Inc. tells the story succinctly with the first
sentence in each of its last four earnings reports: "Praegitzer
Industries Inc. today announced record revenues . . ."
The sentences, however, do not continue with announcements of
record, or even particularly strong, income levels. That's why
some are getting a bit antsy with Praegitzer, a Dallas, Ore.-based
printed circuit board manufacturer.
"If your top line is growing and your bottom line isn't, there's
something wrong," said Scott Butler, an analyst with
Portland-based Pacific Crest Securities.
The sluggish bottom line isn't the only problem. Wall Street wants
Praegitzer to improve its communications flow, particularly when
the company has bad news to share.
Praegitzer acknowledges the problem and vows to improve.
Communication is an issue, Butler said. But, he added, Praegitzer
is a young public company and is still learning the Wall Street
dance.
The events surrounding Praegitzer's Sept. 5 announcement of a
small layoff illustrates what happens when a company doesn't
communicate with Wall Street.
The announcement itself seemed rather innocuous--a layoff of
105 employees, or a 6 percent work-force reduction, at the Dallas
manufacturing facility. The company said the layoffs were the
result of improvements in scheduling, manufacturing processes
and more automation. Praegitzer continued by saying production
levels would be up almost 30 percent compared with the same
period a year earlier.
Typically, modest layoffs accompanied by increased production
are seen as positive developments by Wall Street. At first, the
stock reacted only mildly as most analysts shrugged it off.
Then John McManus of Needham & Co. in New York lowered
his first- quarter earnings estimate from 17 cents per share to 10
cents per share. When word got out, the stock, which had traded
as high as $15.50, dropped 11 percent in one day, to $11.63.
Other analysts were puzzled at first. But it turned out that
McManus, whose firm was an underwriter of Praegitzer's IPO,
had found out that first-quarter sales would be lower than
previously expected. Other analysts soon followed his lead and
lowered estimates.
Butler lowered his first-quarter estimate from 15 cents per share
earnings on $46 million in revenues to 9 cents per share on $42.5
million in revenue. David Duley, an analyst with Portland-based
Black & Co., reduced his estimate to 8 cents per share on $43
million in revenues.
Praegitzer learned a lesson: It has to do a better job
communicating with the financial community. Wall Street won't
necessarily hammer a company for performing poorly. But it
shows no mercy to a company that doesn't meet its numbers,
Butler said. Disappointments, especially when they come late in a
quarter, are deadly.
"I guarantee you if you get the bad news out of the way early by
the time the quarter is up they won't penalize you," he continued.
Matt Bergeron, Praegitzer's chief operating officer, acknowledged
that his company could do a better job communicating with the
financial community. The company needs to make sure that it
gives analysts enough information to make reasonable estimates,
he said. At the same time, a company can't let worries about what
the analysts will think dictate its course, Bergeron said.
"The No. 1 thing is [the relationship between analyst and
company] doesn't affect business, and I say that somewhat
tongue-in-cheek because your stock price does affect the
business."
Since the September fiasco, the stock has battled gamely upward,
recently trading above $14. And that trend may more fairly
represent the effects of the changes underway at Praegitzer.
Bergeron insists Praegitzer is taking steps to secure its future.
"We had the wrong leadership in place in order to execute. We
should have done it better," Bergeron said.
Near the end of fiscal 1997, which ended June 30, it became
apparent that some changes were needed, he said. The company
ended the year with record revenue, $147.9 million, but reported
a loss of 68 cents per share, which was attributed to the
acquisition of a circuit board maker and improvements to
facilities.
Greg Lucas, formerly vice president of technology at Zycon Corp.
in Santa Clara, Calif., joined Praegitzer as senior vice president of
technology, a new position. Jim O'Connor, formerly director of
manufacturing at Zycon, was named vice president of operations
at the Dallas division.
In other moves, Bob Schmelzer, formerly human resources
manager at Penwest Ltd. in Bellevue, Wash., assumed the vice
president of human resources position. And Steve Thatcher,
formerly corporate director of new technology and strategic
planning, was promoted to vice president of operations at the
Redmond, Wash. division.
Bergeron declined to discuss the people who were let go to make
way for the new management team, saying he'd rather focus on the
new team.
But, he did note that the former managers served the company
well when it was going through its entrepreneurial phase. Now,
the company has managers who can sustain and grow a mature
business, Bergeron said.
Along with new managers, Praegitzer has new and improved
facilities.
The company launched an aggressive capital improvement
campaign, highlighted by a $10 million investment in new
equipment for its Dallas manufacturing facility, and completed a
key acquisition, purchasing for $26 million Trend Circuits, a
company that specializes in fast turnaround of prototype printed
circuit boards, Bergeron said.
The acquisition was critical, Bergeron said. Praegitzer's strategy is
to provide services from circuit board design to prototyping to
volume production. Trend Circuits provides the second piece of
that strategy, Bergeron said. Duley added that Trend has a good
reputation for its ability to quickly turn-around small, prototype
orders.
"When Trend was acquired [the deal closed in the first quarter of
fiscal 1997] it was viewed pretty positively," Butler said. Then
Praegitzer's stock suffered a bit as problems integrating Trend
surfaced, he added.
"Praegitzer had to significantly ramp up compensation schedules
that lined the pockets of people at Trend," Butler continued.
Because Trend makes small-batch prototypes, it doesn't have a big
sales pipeline to keep it busy, so Praegitzer was justifiably leery of
disrupting Trend's sales force, Butler explained.
Once again, however, Praegitzer failed to do a great job of getting
its message to Wall Street, Butler said.
The capital investments, Butler said, were needed even though
they've had an impact on Praegitzer's bottom-line. Praegitzer also
spent some time improving its manufacturing process, which is
quite similar to the cleanroom environment at semiconductor
plants.
The printed circuit board industry is in a period of consolidation
and the winners will be the large companies that grab market
share. Big companies will enjoy tremendous economies of scale
and, viewed from a market share perspective, Praegitzer is
definitely on the right track, Butler said. The company is taking
market share from Merix Corp., which is based in Forest Grove,
and Hadco of New Hampshire.
Praegitzer also is doing a good job of balancing growth with
customer satisfaction, Butler said. The company's clients like
Praegitzer, and that bodes well for the future, even if Wall Street
doesn't typically reward companies for good customer service
marks, Butler said.
"There is a window of opportunity right now," Butler said. "I
would rather see them take risks with shareholder capital to grow
with."
Praegitzer also recently announced plans to purchase a
manufacturing facility in Malaysia. Bergeron said the deal should
not have an adverse impact on second-quarter earnings, but
Butler said the announcement is causing some concern. Given
Praegitzer's underwhelming performance lately, Wall Street may
be wondering if the company can simultaneously absorb another
acquisition and grow its bottom line.
In fairness to Praegitzer, it should be noted that none of its peers
has performed with much zest in recent quarters, said analyst
Duley. Not only did Praegitzer embark on a course that required a
lot of spending, it did so at a time when its industry was in the
doldrums, he explained.
Though willing to be patient with Praegitzer, Duley said he is
expecting better things.
"It seems an amount of time has gone by that is reasonable," he
commented. "Going forward we should see some improvement."
Butler also expects to see some improvement, but noted that
things-will-be-better-next-quarter has been something of a
quarterly chorus from Praegitzer.
The easiest way to maintain good relations with the financial
community is to deliver the expected earnings. And that is exactly
what Praegitzer is ready to do, Bergeron said.
In the next quarter, Duley expects earnings of 21 cents per share
on revenue of $47.4 million. The big jump in per share earnings
should come from improved gross margins, he said.
Butler expects the company to earn 15 cents on $46.25 million in
revenues. "That would represent a sequential improvement," he
added. "It would show they are back on track."
And no surprises for The Street would be nice, too. |
