BREAKFAST WITH THE FOOL
Thursday, August 19, 1999
"Only two things are infinite, the universe and human stupidity, and I'm not sure about the former."
-- Albert Einstein
Network Appliance Reports Q2 Results
Brian Graney (TMF Panic)
Network attached storage (NAS) devices maker Network Appliance (Nasdaq: NTAP) reported robust fiscal Q1 earnings and revenues last night in what traditionally has been the company's toughest quarter. Earnings climbed to $0.16 per share, up 60% from a year ago, on revenues that accelerated 80% year-over-year to $103.3 million. The First Call mean estimate had called for EPS of $0.14 for the period.
Overall, the company's income statement performance was a mixed bag. Gross margin slipped a bit to 58.8% from 59.5% during the same period a year ago. R&D and general and administrative expenses raced ahead at a faster rate than revenue growth, eroding operating margins to 18.2% from 19.6%. Operating expenses now represent 40.6% of revenues, up slightly from 39.9% a year ago.
However, a 16-fold increase in the other income line bailed out the quarter and allowed net margins to rise to 13% from 12.4%. With only 816 employees as of May 31, NetApp is still a relatively small company despite its $4.6 billion market capitalization. A lumpy performance here and there as the firm tries control its rapid growth is to be expected. More importantly, though, management appears to have their hands firmly on the steering wheel, and the company continues to head in the right direction.
When some over-eager writer eventually takes it upon himself or herself to pen the history of the "Great Internet Build-Out" of the late 20th century, one important chapter will be the new medium's incredible ability to take small niche players like NetApp from nothing to something in very short order. In fiscal 1995, NetApp's total revenue for the year was $14.8 million -- a mere 10% higher than the firm's quarterly earnings of $13.5 million in the most recent period. Since that year, the company's full-year revenues have grown at an astonishing compounded average annual rate of 81%, hitting $289.4 million in fiscal 1999. That kind of growth will make a great story some day, since it perfectly illustrates the speed at which the Internet in its infancy has been able to create substantial value in the marketplace.
News to Go
Four days after dissing an initial merger offer as "inadequate," aluminum producer Reynolds Metals (NYSE: RLM) gave in this morning and agreed to be acquired by rival Alcoa (NYSE: AA) in a stock swap valued at $4.4 billion, excluding assumed debt. Alcoa said it expects to realize $200 million in pre-tax cost and efficiency savings from the deal by the end of the second year.
Baby Bell Bell Atlantic (NYSE: BEL) is expected to seek regulatory approval to offer long-distance service in New York state as soon as next month, The Wall Street Journal reported this morning. A hearing before state utilities regulators has been scheduled for Aug. 31, and a long-distance service application could be filed with the Federal Communications Commission shortly thereafter, the Journal said.
Casual clothing retailer American Eagle Outfitters (Nasdaq: AEOS) put up earnings of $0.35 per share for the second quarter, up from $0.20 per share last year and $0.04 per share ahead of the First Call mean estimate. Same-store sales rose 19.8% in the period compared to a year ago.
Online discount retailer Onsale (Nasdaq: ONSL) guided investors to expect 8% to 12% sequential revenue growth in Q3, followed by 15% to 20% sequential growth in Q4, excluding the operations of merger mate Egghead.com (Nasdaq: EGGS). Based on 12% growth in Q3, revenues could come in at $91 million, which is short of the First Call mean estimate of $105 million.
This week's Dueling Fools features PC retailer CompUSA... When Greenspan talks, who knows what he's saying? Louis Corrigan looks at the Fed's interpreters... Read the StockTalk interview with the CEO of iTurf.
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