|
|
|
|
Wednesday, April 15, 1998 Tuesday, Iomega closed at $7 1/8, up $1/4 (+3.64%). TODAY'S RECAP: Iomega posters launched into a frenzy of pre-earnings speculation. Posters to the left of me, posters to the right of me, and almost all of them wondered what the effect of Iomega's potentially weak Q1 earnings would do to a stock which has already been buffeted by unfriendly market winds. Exchanges and commentary provided the best posts yesterday, and they are copied below. Enjoy! INDEX: Use the Search or Find feature of your word processor to locate the article number (Find: 1++, 3++, etc.) - or use AOL's Edit>>Find in Top Window Feature. If Find in Top Window is dimmed, just click on some text, anything, in the IOM Today window and try again.
1++ HRPlbg does some estimating of Iomega's 1Q earnings
Recap written and posts compiled by TMF
Weekly. _______________________________ And now, the Best of the Board...Started 9:00pm ET 4/13/98. 1+++++++++++++++++++++++++++
Subject: 1st Qtr. 1998 Estimate CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS or the Three Months Ended Actual Actual Estimated "March 30,1997" % "December 31,1997" % "March 31,1998" % SALES $361,344 100.00% $546,766 100.00% $361,344 100.00% COST OF SALES $254,065 70.31% $364,169 66.60% $240,655 66.60% Gross Margin $107,279 29.69% $182,597 33.40% $120,689 33.40% OPERATING EXPENSES: Selling, general and administrative $54,360 15.04% $104,123 19.04% $124,123 34.35% Research and development $14,717 4.07% $23,731 4.34% $23,731 6.57% Total operating expenses $69,077 19.12% $127,854 23.38% $147,854 40.92% OPERATING INCOME $38,202 10.57% $54,743 10.01% ($27,165) (-7.52%) Interest and other income and expense, net ($2,872) (-0.79%) $828 0.15% $828 0.23% INCOME BEFORE INCOME TAXES $35,330 9.78% $55,571 10.16% ($26,337) (-7.29%) Provision for income taxes ($12,316) -3.41% ($19,450) -3.56% 0 0.00% NET INCOME $23,014 6.37% $36,121 6.61% ($26,337) (-7.29%) NET INCOME PER COMMON SHARE $0.17 $0.13 ($0.09) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 135,703 283,469 283,469 Notes: 1) Estimated March 31, 1998 Sales are based upon Iomega's Business Wire press release dated March 16,1998. "..first quarter 1998 revenue will be relatively flat with first quarter 1997.". 2) Estimated March 31, 1998 Cost of Sales were derived using the same gross margin percentage as 4th quarter 1997. 3) Estimated March 31, 1998 SG&A was based upon 4th quarter 1997 SG&A plus (+) $20 Million in incremental marketing expenses as refered to in Iomega's Business Wire press release dated March 16, 1997. "..The shortfall in sales combined with over $20 Million in incremental marketing expenses appear to be the main factors contributing to our expected loss.". 4) Estimated March 31, 1998 Interest and other income and expense, net was taken from 4th quarter 1997 simply because I had no idea what this should be. 5) Estimated March 31, 1998 Provision for income taxes was left blank because I have no idea what effect a net loss will have on their taxes. 6) Estimated March 31, 1998 Weighted Average Common Shares Outstanding were left the same as 4th quarter 1997 because I don't know the actuall number. My Thoughts and Comments; I look forward to others comments. I'm very interested in how and what taxes if any will be required on this projected loss. I looked back to some old Iomega losses and they still paid taxes so I'm going to assume that they will also pay taxes for 1st Qtr. 1998 creating a larger loss than above. I hope someone that actually knows will explain the mechanics of corp. taxes when a loss is involved. I feel the Sales or Revenue number will be fairly close. As indicated in the press release the actually results will depend greatly upon the very last few weeks of the quarter. Jaz 2 could be the pivotal product. I personally feel all other products were being shipped in quanities that would allow Iomega to book the max. amount of revenue allowed by their accounting practices. Any Jaz 2 shipped at the end of the quarter would have went directlyinto sales with no chance in my opinion to have a reserve taken against the sales because of the low or no level of inventory. My guess is that there was an all out push at the end of the quarter to ship every possible Jaz2 drive that they could get out the door. Gross Margins I assumed to be about constant from 4th qtr. 1997 to 1st Qtr. 1998. I feel this is a fairly good assumption. I don't see much improvement in production eff. that would drive down production cost. Jaz2 could provide a slight boost to GM depending on the Sales booked for Jaz2. SG&A I feel will be fairly close. I used 4th Qtr. 1997 and added $20 Million for the Ads. R&D I held constant from 4th to 1st qtr. It might be actually higher. I can't see it being any lower unless IOM laid people off. Weighted Average common shares outstanding may actually be higher than I have estimated. Net benifit would be a lower or smaller per share loss. Not actually better but to many it will sound better. Sorta like SYQT. :-) It's getting late so I'll sum up my feelings. Revenue or Sales will be the Story on Thursday. They either have it or they don't. Anything less than 1st Qtr. 1997 would be really bad IMHO. I would love to hear a break out of Zip Sales $ and Units for 1st Qtr. 1997 and 1st Qtr. 1998. IMHO this would tell the real story. Not holding my breath. Given that my loss above is on the high side of the $10 to $25 Million loss reported in the press release I'm assuming Revenue or Sales will come in slightly higher than my number above. If you assume no increase in GM and believe my other assumptions you get a revenue number of $365 to $412 Million. If you assume some taxes the revenue would be slightly higher. Is it possible IOM could project relatively close all products except on Jaz2 as of the press release on March 16? Is it possible that the entire difference ($10M to $25M) could have been the actual shipments of Jaz2 that made it out the door? I think Jaz2 would have been the most uncertain product. Surely they could project 2 weeks ahead on Zip and may have already had the channel stuffed with the Zip product. 2+++++++++++++++++++++++++++
Subject: Re: 1st Qtr. 1998 Estimate Good excercise. One has to wonder what the analysts' are thinking when they only project ($0.03). Is it possible IOM could project relatively close all products except on Jaz2 as of the press release on March 16? Is it possible that the entire difference ($10M to $25M) could have been the actual shipments of Jaz2 that made it out the door? I think Jaz2 would have been the most uncertain product. Surely they could project 2 weeks ahead on Zip and may have already had the channel stuffed with the Zip product. Jaz2 is certainly an obvious product that does not have an inventory overhang from Q1. Another would be the notebook Zip drive which had ramp problems (lack of components) in 4Q. It also probably had very little channel inventory and sales should be up. The 15mm model sell through would have probably been known when Iomega made the warning. However, KE said the OEMs were waiting solely for the 12.7mm. Does today's notebook drive OEM announcement (and prior micro Zip product announcements) mean that 12.7 mm Zip drives are being produced and shipped to OEMs? In this case, Fuji has not yet sold the notebook PCs so Iomega could almost do anything with the revenue from shipping the products to Fuji. Some other thoughts specifically on your exercise: - With a loss the fully diluted amount of shares will not be used. Primary EPS will be reported AFAIK which would make your estimates per share loss greater. - Iomega would have tax expense because they pay sales and income taxes in foreign jurisdictions. Usually these are used to offset US taxes, but no US taxes this quarter. - I agree that Gross Margin should be closer to 4Q97 than 1Q97. Iomega had larger than expected disk sales at this time last year. They had thought this was due to XMas drive receivers buying disks for their presents. - IMO, I think Iomega sold through units at a pace closer to 4Q than 1Q. Hopefully, they let us know how unit sales did. I don't think anyone selling the stock under $7 expects Iomega to come anywhere close to $400 MM in revenue. I agree with you, take anything over $361 and some hope for the future from the conference call and move on. 3+++++++++++++++++++++++++++
Subject: Re: 1st Qtr. 1998 Estimate q1 98 estimate HRPlbg Jazipit sales 361 370 GP 121 104 GP % 33.4% 28.0% SGA 124 102 R&D 24 25 Op Income (27) (23) Int income 1 1 taxes 9 8 net loss a/tax (17) (14) eps (.06) (.05) Comments: 1. I expect sales in the area of 370k. 2. Gross profit in the first quarter 1998 will suffer from manufacturing inefficiencies operating at lower levels of production. In addition, fixed costs incurred in the first quarter will have to be spread over significantly lower levels of production as compared to the fourth quarter of 1997. In simplistic terms, when volumes are forced down the massive overhead that Iomega has built up must be spread over less units of production. They could attempt to inventory these costs, but they are more likely to write these costs off as inefficient manufacturing variances; thereby limiting the impact of the volume reduction to one quarter versus letting it act as an overhang over several quarters. A simple example will help illustrate this. q4 97 cost of sales 364 assume 30% of the costs are fixed overhead 110 therefore 70% of cost is variable 254 Assume 5 million widgets were built in q4 total cost per unit is $72.80 fixed overhead cost per unit is $22.00 variable cost per unit $50.80 q1 98 sales are 66% of q4 98, therefore equivalent units of production is 3.3 million widgets. if one assumes no change in inventory balances and no significant costs reductions, the following cost of sales for q1 will result at the lower sales and production level. 3.3 million units at $50.80 equals 50.80 168 fixed costs of 110 divided by 3.3 million units 33.33 110 projected cost of sales for Q1 84.13 278 75% of sales of 370 The above was used as an example of what happens to product costs when volumes swing widely down. The opposite happens as volumes go up. I have choosen to estimate 28% for the quarter by assuming a better disk mix, some reductions in fixed overhead cost accompanied by a little Kentucky windage. Under no circumstances do I expect margins to above 30% 3. SGA --- a certain portion of SGA costs are variable and will come down as a result of the reduced volumes. Lets restate the facts that we know. q4 98 SGA was 104 million on sales of 547 million. $10.4 million bonuses were accrued in 1997 and paid in 1998. Likely $3.0 million occured in q4 and these will not reoccur in 1998. However, this could be partially offset by a severance payment to KE. Q4 is already a heavy promotion quarter which includes Comdex and other expenses. It is likely the company diverted some of its q4 spending into the $100million campaign. Let's do a little quick build up using q4 as the base. q4 spend 104 assume variable spending of 5% of sales (27) fixed spending in q4 77
variable spend in q1 sales of 370 18 add 20k campaign 20 remove bonus (3) other cost reductions/spending controls (10)
q1 sga estimate 102
I believe you will find sga spending in q1 to be approximatedly equal to the q4 spend.
4. The tax rate of 35% that was used in 1997 will also apply to 1998 per the 10k. It can be used to reduce losses as long as there are carry backs available from 1997 or profit is aniticipated in 1998. The 35% tax rate will reduce the q1 loss since the government will help fund this out of past taxes paid. I do not have the time to cite tax code precisely, but a review of similar situations at other company's will show the treatment that I am describing above.
I would like to applaud HRPlbg for his effort, but I believe the above is a much more likely outcome for the first quarter.
I also expect some right sizing activity to occur in the next few months to help bring the runaway expense growth under control and to set the company structure up for a more profitable future. THE SOONER THE BETTER!!!!!!!! 4+++++++++++++++++++++++++++
Subject: Re: 1st Qtr. 1998 Estimate > HRPlbg Jazipit >sales 361 370 >GP 121 104 >GP % 33.4% 28.0% >SGA 124 102 >R&D 24 25 >Op Income (27) (23) >Int income 1 1 >taxes 9 8 >net loss a/tax (17) (14) >eps (.06) (.05) >
I think your Net loss a/tax is wrong. Math error.
Op Income (27) (23) Int Income 1 1 Taxes (9) (8) My origional model had 0 taxes. Net loss a/tax (35) (30)
eps full dilution using 283,496 shares (.12) (.10)
eps using non diluted 259,182 shares (.13) (.115)
If I did the math right Both of these numbers fall well outside the press release range of $10 to $25 Million.
Taxes?
Will the taxes be based on last years income? Will they be paying Quarterly tax payments based on their estimated income from last year? If so we should be assuming that taxes will be in the range of $8 to $15 Million. Last year taxes were aprox. $62 M. Divide that by 4 to get a quarterly number and you get $15.5M. I'm not sure this is how it works but it's the best I have now.
Any suggestions on where I might be off with these calculations? 5+++++++++++++++++++++++++++
Subject: Re: 1st Qtr. 1998 Estimate Harry, my math was correct. When a company has income, the income tax reduces the income. When a company has a loss, taxes decrease the loss. The government does not ask you to pay taxes on the amount of money you lost. Therefore, the tax affect is to decrease the loss as long as you have paid taxes in the past. If you have paid taxes in the past, you are able to get some of this money back. A company will use an effective tax rate for the year based on the best estimate of the total year income for all of its legal entities. It will use this estimated percent for the entire year unless business conditions significantly change the ingredients. I have dealt with the above issues in company's that I worked with over the past many years. My facts and interpretation are correct. I am certain that there are others who will be able to confirm the calculations that I have done. _______________________________
End Report. Posts covered through 9:00pm ET 4/14/98
WE
DELIVER - Get IOM
In Fooldom Today delivered
|
||||||||||
|
|||||||||||
