You'd think one of the easiest companies on the planet to predict earnings for would be a parking business. The number of parking spaces stays pretty much constant. Barring layoffs or Major League Baseball strikes, you'd expect that the number of commuters or sports fans parking in those spaces would also be pretty predictable. Yet somehow, analysts for Central Parking (NYSE: CPC ) have been totally, wildly off the mark in predicting the company's earnings in each of the past two quarters -- off 240% to the low side last quarter, 32% to the high side the quarter before that. What new surprises will Central Parking spring on us when it reports its fiscal Q2 2006 numbers? Tune in tomorrow before the market opens to find out.
What analysts say:
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Buy, sell, or waffle? Three analysts follow Central Parking, each rating it a hold.
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Revenues. Sales are expected to come in 1% lighter than last year, at $162.8 million.
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Earnings. Profits are expected to tumble 72% to just $0.05 per share.
What management says:
In the analysts' defense -- and management's critique -- it's not just Wall Street that lacks a firm grasp of Central Parking's business. Last quarter, CEO Emanuel Eads said: "Earnings from continuing operations for the first quarter of fiscal 2006 exceeded our expectations." Eads also explained just why it is that the company's profits make such wild swings. Simply put, the company is less of a "toll booth," collecting steady streams of cash in exchange for a mandatory service, and more of an arbitrageur, making "opportunistic property sales" when appropriate and pocketing the resulting profits.
Meanwhile, back on the ordinary-course-of-business side of the business, Eads noted that Central Parking continues to close "low margin and unprofitable locations" as part of an "initiative to improve profit margins." Let's see how that's working out.
What management does:
So far, not so good. Gross margins have continued to slide over the past 18 months, down 180 basis points at last count. Operating margins are down more than half over the same period. Only in the rolling net margin do we see improvement, where $61 million worth of gains from asset sales over the last year have done wonders for the firm's bottom line.
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Margins
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9/04
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12/04
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3/05
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6/05
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9/05
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12/05
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Gross
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10.6%
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10.1%
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9.6%
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9.6%
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9.2%
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9.2%
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Op.
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3.9%
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3.3%
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2.7%
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2.6%
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1.8%
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1.5%
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Net
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1.5%
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1%
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1.3%
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1.2%
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1.3%
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2.6%
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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Hefty profits from asset sales aside, taken as a whole, I still consider Central Parking to be a company that can't translate its sales into a good business. All the sales have had little positive impact on the firm's balance sheet, which still bears $187 million worth of net debt (cash and equivalents minus long-term debt). And leaving aside the $86 million in cash income yielded by those assets over the last six months, the parking business still has a solid negative cash flow, with free cash outflows exceeding $16 million over the period.
This is just one Fool's opinion, and take it for what it's worth, but I really think this is no way to run a toll booth.
Competitors:
ABM Industries (NYSE: ABM )
Standard Parking (Nasdaq: STAN )
Customers:
Jones Lang LaSalle (NYSE: JLL )
Fool contributor Rich Smith does not own shares of any company named above.
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