When you think of Brink's
Read only the first paragraph, and everything last quarter was fantastic. Revenue was up 18%, and net income more than doubled from continuing operations.
But read on. Brink's "discovered" that a non-U.S. business unit "has not paid approximately $3 million, before interest, of foreign duties and value-added taxes."
"Ah," you say, "It's only $3 million -- and the company earned $19.8 million, after taxes, in its latest quarter. Where is the suspense here?"
Well, first, there is the matter that "local counsel" advises that "there may be civil and criminal penalties and interest imposed." Well, how bad can that be?
Glad you asked -- because this is a zinger. The potential penalties, if any are ever assessed, could be up to $85 million (excluding interest). Now that is a big number.
And, like with a TV serial, you are kept hanging. The company investigation is ongoing, and the $85 million is based on "the investigation to date and could change materially." Those are not encouraging words.
There are missing elements, too. The company, not a government agency, uncovered the infraction. Will there be leniency for confessing and paying quickly? Where did this occur?
Ah, and then this: Will the trial lawyers descend on the company for not having proper controls? Although this is not Royal Dutch
The three divisions of Brink's had a nice turnaround going. Home security, the smallest division, is solidly profitable, with a 23% operating margin. The standard-bearing Brink's operation is growing faster, but with a 5.7% margin. Freight transportation unit BAX Global, the biggest division, is the fastest-growing but sports an unspectacular 2.1% margin.
The stock is down 16% today and looks to be trading at a bargain 17 times 2004 earnings estimates. But earnings guidance is going to go down -- and current investors could be at the brink of more suspense (bad news). Let the problems be defined. There are too many unknowns to make the stock attractive at current prices.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.