ALEXANDRIA, VA (Oct. 14, 1999) -- In the month since we covered our Trump Hotels (NYSE: DJT) short at $4 7/8 per share, the stock has declined to $4 1/16.


Actually, I'm going to turn this into a rap modeled on, what else, a Milli Vanilli groove:

whatchya doin' Donnie
We were there for

Yikes. Too creepy. Forget it. We can talk to the man directly anyway. Donald Trump is a guest on the Fool Radio show this Saturday. Inevitable topics include his bid for President, his casino company, and its stock. So dial into Fool Radio this weekend and talk to The Donald.

As for the stock, we don't regret covering our shares of Trump. Regret is an unFoolish commodity -- one that's worth less tomorrow than it is today. Trump Hotels should be refinancing some debt in early 2000 and operating results should improve. Alongside this, perhaps the stock will finally escalate. We earned 45% on the short during one of the stock market's strongest thirty-month periods. That said, we could have done better shorting Iomega.

Iomega (NYSE: IOM) announced third quarter results after the market's closing bell went BONG. If the bell rang for a bout in the ring, Iomega would have lost. In fact, the only knock-out in the ring would have been Iomega's CEO -- that is, he'd be knocked out of the ring. (I'm trying to steal TMF Edible's writing style. I'm failing.)

Iomega reported third quarter revenue of $356 million, down 9% from one year ago in continuation of a long downward trend. The decline was due primarily to lower Jaz and Ditto revenue, which was offset partially by higher ZipCD and Clik! sales. Jaz sales tumbled 23% from last year. Overall, sales did rise from last quarter's $349 million, and Iomega's customer base of Zip users rose to 29 million after it shipped 2.9 million Zip drives in the third quarter.

The company was expected to lose one copper penny per share. Before restructuring costs, Iomega reported a loss of $78.3 million, or $0.29 per share. Excluding several one-time and non-cash costs, Iomega actually earned pre-tax operating income of $7 million, or $0.026 per share, which would amount to an after-tax earnings per share number of about $0.016. This being the case, operating results were much improved from last year and from last quarter as management continues to work to achieve "sustained four-quarters-a-year profitability." The company is optimistic that it will be profitable in the fourth quarter, many variables not withstanding.

Iomega was one of the fastest-growing companies in the mid-1990s, as the table below demonstrates. It achieved ten-times sales growth in three years. Strong profits have always been somewhat elusive, however, and sales declined last year and may again in 1999. For the nine months just ended, sales totaled $1.091 billion. This compares to $1.193 billion at this time last year. Since 1993, annual results have been:

Iomega's Annual Results (in millions)
Year     Sales      Net Income  Profit Margin 
1998     $1,694.4     (54.2)          --
1997      1,740.0     115.4          6.6%
1996      1,212.8      57.3          4.7%
1995        326.2       8.5          2.6%
1994        141.4      (1.9)          --
1993        147.1     (14.6)          --
Sales have been held back this year and last due to market acceptance. That's right: in some measure, success is hurting Iomega. How?

The company is selling more and more Zip drives (63% of all Zips sold last quarter) to the original equipment manufacturer (OEM) channel, for which it makes relatively little money. The money is in selling boxed Zip drives to retail consumers from the shelves. Instead, Iomega is selling more and more to PC makers, while its other products (Jaz and Clik!) largely suck cash rather than spew it. Zip sales merely allow the company to continue to tread water given the weight of other products.

On the plus side, Iomega's cash position improved this quarter following a dip last year.
              3Q99      3Q98       4Q97 
Cash        $132.8     $45.5      $159.9
LT Debt      $3.73     $78.2       $45.6
Back to the negative side, the steady decline in sales each year is, again, an ugly indicator of performance. The company isn't a growing operation.
                       3Q99         3Q98       3Q97  
Sales                 $356.6      $391.7      $431.7
Cost of Sales         $269.9      $304.1      $291.3
Gross Margin            24.3%       22.3%       32.5%
Operating Income      ($23.3)     ($19.7)      $45.1
Operating Margin       N/A          N/A         10.4%
Iomega issued an eleven page earnings report, and its third quarter conference call replay is also available via the Web. The community on the Fool being its strongest asset, visit the Iomega message board to discuss the results.

In Drip Port, today we look at a solid company paying a 4.2% dividend yield as we continue our study in search of a buy.

Fool on!

As always, share any thoughts about tonight's recap in our Rule Breaker Strategies board. And if you are looking into, or for, any new Rule Breaker prospects, the conversation always continues on our Rule Breaker Companies message board.