Exar Corporation (EXAR) designs and sells analog and mixed-signal silicon products for the networking, serial communications, and storage markets. EXAR reported fourth quarter of fiscal 2008 (ending 3/30/08) earnings on May 15. The company has no debt and $6.24 per share in cash, selling at $7.98.
Financial Highlights
Net sales - $28.3 million.
Non-cash charge of $165.2 million, for the impairment of goodwill and other intangible assets related to the acquisition of Sipex.
GAAP net loss - $172.4 million, or $3.77 loss per share, which includes the impairment charge.
Non-GAAP net loss - $1.7 million, or $0.04 loss per share, excluding the impairment charge.
Cash, cash equivalents and short-term marketable securities - $269 million, or $6.24 per share (diluted count).
No debt.
Guidance
First quarter of fiscal 2009 ending June 29, 2008:
Net sales will increase to between $29.0 million and $31.5 million.
Gross margin is expected to be between 44% and 46% on a GAAP basis and between 47% and 49% on a non-GAAP basis.
Operating expenses are expected to be between $19.2 million and $19.7 million on a GAAP basis and between $17.2 million and $17.7 million on a non-GAAP basis.
Conference Call
“GAAP net sales excluded approximately $2.5 million in the fourth quarter as a result of one, purchase accounting which precludes revenue recognition on purchase date inventory held by Sipex distributors upon sell-through.”
“Used $35 million in cash to repurchase a 4.5 million shares of its common stock at an average price of $7.71 per share.”
Monday, May 19, 2008
Exar Corporation (EXAR)
FreightCar America, Inc. (RAIL)
FreightCar America, Inc. (RAIL) manufactures and sells freight cars used for hauling coal, bulk commodities, steel and other metals, forest products, and automobiles for the North American market.
RAIL held its conference call on May 1, 2008, in conjunction with first quarter of fiscal 2008 earnings (3/31/2008). The company is being impacted by a short term slow down in demand and rising material costs that it is having difficulty passing through fully to customers.
Financial Highlights
Revenues - $95.1 million.
Net income - $1.1 million.
Earnings per share - $0.10.
Order activity - 2,673 units.
Backlog of unfilled orders - 6,785 railcars. (1,450 units under firm contract)
Railcar deliveries - 1,287 units.
Cash and cash equivalents - $161.7 million.
Outlook on Coal Markets
“Coal export activity increased 19.2% in 2007 as compared to 2006 levels. This boost in activity has carried over into the first quarter and is expected to continue throughout 2008, providing a positive impact on car loadings over the remainder of this year.”
Short term – “In the near term, we expect the overall market for coal car deliveries to remain relatively soft in 2008.”
Long term – Strong demand as Coal stays the fuel of choice for electricity generation in the United States – “During the next six years, approximately 75 coal-fired power plants are expected to come online, which will require approximately 40,000 coal cars. Of these 75 plants, 47 are currently either under construction, near construction or permitted for construction. These 47 plants are expected to add 24,250 megawatts of coal-fired capacity requiring approximately 20,000 coal cars.”
Management Comments
“While we've certainly felt the pressure of this difficult operating environment, our continued execution on our strategy of reducing the manufacturing footprint and a broad focus on cost reduction has positioned us to weather the current industry cycle.”
“As we navigate through this difficult stage of our industry cycle, we are facing significantly lower volume levels, which have generated pricing pressure with a corresponding impact on margins. Industry competitors are aggressively pricing products with both sales and lease rates, fostering pricing declines approaching the high single-digit percent. In our opinion, we believe that these lease rates on new railcars do not cover the owners' cost of capital.”
“We are seeing increases specifically on material costs such as base metals, both steel and aluminum. And we are subject to a variety of surcharges on raw materials and components. These surcharges are highly unpredictable and may further erode our margins.”
“The railcar sector continues to be affected by intense pricing competition, including below-market lease rates.”
Other
RAIL is closing Johnstown, Pennsylvania factory due to higher costs relative to other facilties. (Since the conference call, RAIL lost an arbitration ruling with the United Steelworkers of America regarding the plant. The impact according to the company will be a “one-time charge of between $20.0 million and $24.5 million with the corresponding impact on cash flow of between $13.0 million and $17.5 million. This would result in an adverse impact on earnings per share of between $1.11 and $1.32 for the quarter.”)
Q & A
Second quarter orders?
“…but the order activity level for Q2 is, I'd say we are content with it at this time.”
Backlog?
“…most of the backlog is coal right now.”
Disclosure - No position
Weekly Link Orgy
A study on land prices in NYC.
This book looks like an interesting read but I doubt that I will have time.
Just when you thought the Internet couldn't get sillier. It's Dickipedia.
Notes from the Sequoia Fund Annual meeting courtesy of Shai Dardashti.
An update on JG Boswell, a thinly traded Pink Sheet stock, from Clyde Milton.
The 89th edition of the Festival of Stocks at Stock Pursuit.
Thursday, May 15, 2008
Hirsch International Corp. (HRSH)
Hirsch International Corp. (HRSH) is a seller of equipment and support services to the decorated apparel industry. Its main products are a line of embroidery machines supplied to it by Tajima Industries, Ltd. They range in price from $10,000 to $150,000 each.
Hirsch International Corp. reported first quarter of 2008 (ending 3/31/2008) earnings on May 12.
Q1-2008 Earnings Recap
Revenues - $11.6 million (down 16.4% year over year)
Gross margin - 33.8%
EPS - ($0.07)
Cash - $14.7 million ($ 2.5 million restricted)
Cash per Share is $1.29 or $1.55 with restricted cash.
No debt.
Management Comments
“Results for the quarter reflect a continued challenging economic and retail environment. The general economic slowdown has impacted our customers’ buying decisions, as they are reluctant to upgrade machines and/or purchase new machines."
My Commentary
It was a disappointing quarter for Hirsch International Corp. as customers put off purchases due to concern about the economy, and they couldn't cut expenses quickly enough to make up for the revenue shortfall. Currency hurt the company as well. The company traded at $5.25 12 months ago and it has slowly descended bottoming at around $1.45. It would seem that the cash per share would provide nice downside protection, especially since there is no debt. Other things that investors should be aware of before investing in HRSH:
1) HRSH appears to be hurt by a falling dollar versus the Yen.
2) HRSH has two classes of stock and there is only one holder of the Class B shares (Henry Arnberg) – Class B holders elect 2/3’s of the Board as long as share count stays above 400,000.
3) Tajima products were 72% of revenues in 2007. The distribution agreement grants HRSH distribution rights on an exclusive basis in 39 states for the period February 21, 2004 through February 21, 2011. A separate non exclusive agreement covering 11 other states in the West expired in February 2005. Both agreements can be cancelled by Tajima under two conditions - if minimum sales quotas are not reached, or if Henry Arnberg is no longer Chairman.
Disclosure - No position.
Wednesday, May 14, 2008
Biloxi Marsh Lands Corporation (BLMC.PK)
Biloxi Marsh Lands Corporation (BLMC.PK) reported first quarter of 2008 (ending 3/31/08) earnings last month. The company owns 90,000 acres of marsh land in St. Bernard Parish, Louisiana. BLMC leases out this land to others, and also prospects on its own through an interest in an exploration subsidiary.
First Quarter 2008 Highlights
Revenue - $1.8 million.
Net earnings - $1.0 million.
Earnings per Share - $0.37.
Cash and cash equivalents - $8.8 million.
Marketable debt and equity securities - at cost - $4.6 million.
Other investments - $2.2 million.
Gain on sale of securities - $140,573.
Operations Update
Net daily production - 3.2 mmcf of natural gas from nine wells operated by mineral lessees, and several wells operated by B & L Exploration, LLC of which BLMC owns 75%.
SL 19061 #1 and Lake Eugenie Land & Development 33-1 #1 - delayed until June 2008 due to permitting delays.
SL 19064 #1 - flow tested and pipeline under construction - production expected in June 2008.
SL 18955 #1 and 18957 #1 producing at a combined daily rate of 7.6 mmcf.
For more on BLMC.PK, please go here.
Disclosure - No position.
Tuesday, May 13, 2008
CKX Lands, Inc. (CKX)
CKX Lands, Inc. (CKX) is an oil and gas royalty company that owns a total of 10,375 net acres of land in Louisiana. The land use is:
Timberland - 6,371 acres.
Agricultural Land - 3,014 acres.
Marsh land - 741 acres.
Development Land - 249 acres.
The development land is contiguous to the city limits of Lake Charles, LA.
Most investors confuse this company with CKX Inc.(CKXE), which is the company that produces the American Idol television show.
CKX Lands, Inc. (CKX) reported first quarter of 2008 (ending 3/31/2008) earnings on May 12. CKX does not hold a conference call or communicate with the Street. There is no web site for the company, and it typically releases earnings using a 10-Q filing, without even issuing a press release. Arthur Hollins, the CEO, retired on April 18, 2008, and Joseph K. Cooper, is the new CEO and President. It is unclear what effect this change will have on communication with the investment community.
Q1-2008 Earnings Summary
Revenues - $827,265
Operating Income - $605,290
Operating Margin - 73%
Net Income - $492,019
EPS - $0.25
Dividends - $0.07
Cash and Equivalents - $7.0 million. (includes CD and securities available for sale)
Segments
Oil and Gas - $ 794,040
Agriculture - $32,587
Timber - $638
It is unclear why timber was so weak this quarter. In the same quarter of 2007, Timberland revenue was $33,634. CKX produced 5,068 barrels of oil in the first quarter at an average realized price of $96.43, and 33,338 MCF of natural gas at an average realized price of $8.25.
My Commentary
CKX's land is valued on its balance sheet at only $2.7 million., or $227 an acre. It is certain that the land is worth more than that. However, it is difficult to get a sense of the value due to lack of disclosure by management, and the dispersion of land holdings throughout Louisiana.
Two recent land sales may hold clues to what the land is worth:
1) In October 2007, CKX sold 3,495 acres in Cameron Parish, Louisiana for approximately $3.14 million, or $900 an acre.
2) In April 2007, an entity in which CKX Land has a 16.67% interest sold 100 acres in Calcasieu Parish, Louisiana for $1.9 million, or $19,000 an acre. CKX still has 249 acres of land in close proximity to this sale.
While CKX's quarterly dividend of $0.07 seems paltry relative to its cash flow, the company will usually pay out a special year end dividend. Last year it paid out an additional $0.40 in dividends, giving a trailing yield of 5.5%. In 2006, total dividends paid were $1.38.
Insiders own 21% of CKX land.
Disclosure - I am long this stock.
Compass Diversified Holdings (CODI)
Compass Diversified Holdings (CODI) reported earnings on May 12 for the first quarter of fiscal 2008 (ending 3/31/2008).
Compass Diversified Holdings (CODI) is a publicly traded entity that acquires middle market businesses that meet the following criteria:
1) Significant market share in a defensible industry niche.
2) Proven management team.
3) Low technological and/or product obsolescence risk.
4) Diverse customer and supplier base.
CODI currently owns stakes in 8 operating businesses. It is frequently confused with being a business development company (BDC), but investors in CODI own a share of the businesses rather than the management company. The current yield is 11%.
Q1- 2008 Earnings Review
Revenue - $373 million.
Net loss - $0.8 million.
EPS - ($0.03) per share.
Non-cash expense - $2.3 million due to supplemental put obligations.
Cash - $14 million.
Cash flow available for distribution and reinvestment (CAD) - $9.9 million.
Trailing coverage ratio of CAD to dividend of 1.3 times
$200 million net available to borrow under various lines for acquisitions.
Segment Review (Revenues/Operating Income)
Advanced Circuits - $14.3 million/$4.8 million.
Aeroglide - $16.2 million/$2.0 million.
American Furniture Manufacturing - $37.2 million/$3.7 million.
Anodyne Medical Device - $11.5 million/ $0.5 million.
CBS Personnel - $236 million/ $1.4 million.
Halo Branded Solutions - $28.8 million/??
Silvue Technologies Group - $5.5 million/$1.3 million
Fox Factory - $23.4 million/ $0.2 million.
American Furniture down due to fire. Insurance reimbursement run through balance sheet, not income statement.
CBS - down 4% after removing revenues from Staffmark acquisition - this was due to softening economy. Management said that industry was down 6-10%.
CODI is selling Silvue to Mitsui Chemicals for a total enterprise value of $95 million. This will generate a capital gain of $37.5-$40.0 million. CODI purchased Silvue two years ago for $44 million.
Management Comments
"Two of our companies, CBS and American Furniture, are likely to be impacted negatively in the short term by the economy. In both cases, however, we have good reason at this point to believe that this cycle will produce a natural shakeout in smaller and less well-capitalized competitors, which will ultimately make those businesses substantially stronger and more profitable."
"(CODI) now trading at approximate 7x-8x cash flow and a even lower multiple of EBITDA and high income, yielding over 10% to our shareholders and cash distributions, while covering that yield by over 30%."
"It’s a very strange market out there. And I’ve heard those calls, too, where they say the multiples are coming down. I think overall the multiples are coming down a little, but I do think it’s a fair comment that you’re still able to get, if you can find the right buyer for the right opportunity, then I think the multiples are also firm, because there’s this funny cap out there. But it’s a strange market."
My Commentary
I bought this stock in part because of statements from Joe Massoud, CEO of CODI, that I heard at a conference last year. Here are some excerpts:
"“We think the entire private equity model right now is broken. The whole notion that you would raise half a billion dollars or a billion dollars with a promise that I will invest this money in three years is absurd because you have no idea what yields you’re gonna see or whether they will be attractive or not.”
We liken it to if you said to my 8 year old son – here is a $100 – go buy good things with it and he came back and said dad I could only find $60 worth of stuff the last thing I would do is send him to his room, but that is specifically where the Private Equity market is now which is LP’s don’t reward GP’s for discipline. LP’s say if you can’t invest it I will find someone who can. It’s a broken model.”
“The only thing more broken than that is the notion that once you buy a company you have to turn around and sell it in three to four years so you can post IRR’s so you can raise your next larger fund, even more problematic.”
Massoud made these comments back in June 2007, before it became fashionable to do so.
Disclosure - I am long this stock.
