Strange. The news out of big-screen video display maker Daktronics
In reporting its fiscal first-quarter 2006 numbers, Daktronics had little good to say for itself, at least in comparison with its year-ago performance. Versus fiscal Q1 2005, fiscal Q1 2006 saw Daktronics' net profits decline by 8% despite a double-digit increase in sales. Worse, the company's quarterly free cash flow, which one year ago amounted to $1.4 million, reversed itself and became a $4 million free cash outflow in Q1 2006.
Granted, the company had some good news to report as well. Its sales rose 23% year over year. And its backlog of orders placed but not yet shipped increased from $53 million to $85 million. To put that jump in perspective, two years ago, Daktronics' backlog stood at $56 million, so the company has clearly made some headway in signing deals over the past 12 months.
The real issue, I suspect, is how Daktronics has been making those deals. To figure that out, some reading between the lines may be in order. Now, mind you, this is just one Fool's opinion, but this is what I see happening:
Daktronics suffered some gross margin compression in Q1 2006, recording 31% gross profits on its revenues versus 34% one year ago. The company explained this decline by terming last year's Q1 gross margins "unusually high." But if you'll once again look back an extra year, you'll see that's not quite true. Q1 2004 gross margins were higher still, at 36%. See the pattern forming? We've got 36%, 34%, and 31% -- that's a declining trend, people. And it's mirrored on the bottom line, where net margins have fallen from 9% to 8% to 6% in the quarter just ended.
From this Fool's vantage point, Daktronics' numbers tell the tale of a company fighting for market share in the various markets in which it competes. Daktronics faces Belgian concern Barco in the rental/staging market, where Barco is dominant, and BillBoard Video in advertising and billboards. Moreover, Barco has been trying to muscle in on Daktronics' own turf: video displays for sporting venues. As for how well Daktronics is faring in these encounters, well, it's obviously under pressure. Otherwise, the margins would be rising instead of falling.
But on the brighter side, the company's rising backlog numbers suggest that Daktronics is winning more battles than it's losing.
For more on Daktronics, read:
- Watching the Scoreboard
- Short Circuit From Daktronics
- Daktronics Stays Lumpy
- Daktronics Out of Focus?
Fool contributor Rich Smith holds no position in any company mentioned in this article.