Thursday, August 5, 1999
HOW DID IT DOUBLE?
There are thieves among us, and Sensormatic (NYSE: SRM) wouldn't have it any other way. The electronic security specialist has marched back into demand -- in the clothing racks, in the overhead security cameras, and, of course, into investor portfolios.
The shares have bounced back after falling as low as $3 1/8 back in October. Like a petty thief en route to grand larceny, Sensormatic had been on a long downward spiral before that. Five years ago the stock price had peaked in the high thirties.
In hopes of restoring past glory, the company instilled a turnaround strategy earlier this year. Along with streamlining its operations, it also landed lucrative overseas contracts and larger orders from existing customers like Wal-Mart (NYSE: WMT).
The alarm went off and Sensormatic was buzzing once again.
You know the feeling. You walk out of a store and suddenly the alarm goes off. You're a good citizen. Security checks your bag only to find that the cashier forgot to remove one of the source tags. Well, Sensormatic makes those -- they also provide workplaces with closed circuit television and other surveillance equipment.
The Florida-based company has four manufacturing plants in Florida, Puerto Rico, Ireland, and Brazil. Sensormatic services more than 80 countries.
12-month sales: $1017.5 million
12-month income: $33.8 million*
12-month EPS: $0.30*
Profit Margin: 3.3%
Market Cap: $1077.7 million
(*Excluding non-recurring items)
Cash: $209 million
Current Assets: $768.5 million
Current Liabilities: $402.5 million
Long-term Debt: $427.7 million
HOW COULD YOU HAVE FOUND THIS DOUBLE?
To deal with the past -- and in Sensormatic's case that involved dealing with a stock that was trading for less than a tenth of what it had been back in 1994 -- a company needs to look ahead. A company needs vision. Sensormatic found it.
In May the company announced its Vision 2002 program. According to President and CEO Bob Vanourek, Vision 2002 is a three-year turnaround plan "directed at enhancing our profitability, financial strength, quality, and customer satisfaction as well as achieving sustainable growth."
A commitment to rectify is never foolproof. Two years ago the company had written off a slew of charges related to restructuring and litigation and probably thought that better days were coming. They didn't.
It took a whole year for the shares to finally bottom out. That came on the heels of a poor September 1998 quarterly showing. Margins and sales were falling. Earnings turned into deficits. Hurricane Georges held back $10 million worth of production in its Puerto Rican plant. It was bad -- but not fatal. Because of the company's efforts to streamline operations through painful layoffs and painless efficiency improvements, it kept the bleeding under control (something the company takes literally in its charitable blood bank ways, as it earned the 1998 Excellence Award from the American Red Cross).
With expenses in check, it was easy to see that once Puerto Rico began to deliver on its backlog and new orders like The Limited (NYSE: LTD) announcing an exclusive three-year deal in December rolled in, Sensormatic was poised to bounce back.
WHERE TO FROM HERE?
With quality accolades to boot, Sensormatic has always tried to stay on the cutting edge of retail security. Its new product lines are smaller and more efficient. That should continue to bring on expanded orders from shopping icons like Federated (NYSE: FD) and Wal-Mart. Between the organic growth of the retail chains and the need to update to sleeker technology, Sensormatic's future looks pretty, well, secure.
After some lackluster profit-stunned years, earnings growth is expected to recover strongly this new fiscal year. Analysts are looking for the company to earn $0.67 a share this year (which ends in June). It's a solid start for a company with two years to go after that to prove that Vision 2002 was ultimately 20/20.
-- Rick Aristotle Munarriz
Change the World... work for the Fool.
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