The market took a bit of a dive yesterday, but forgive investors in DelticTimber
Hardly. Q3 2005 saw Deltic's profits decline from last year's $0.30 to just $0.26 per diluted share. Its sales fell from $43.2 million to $36.8 million year over year.
Honestly, though, those numbers don't really matter much. Like its fellow tree growers, including perennial Fool fave Plum Creek Timber
But while investors rightfully shrugged off the year-over-year decline in profits, the company's earnings release contains further bad news that investors ignore at their peril: Free cash flow declined markedly. Mind you, Deltic follows the lamentable practice of too many public companies: It doesn't publish a cash flow statement with its earnings release. To see the actual numbers, we'll have to wait for Deltic to file its 10-Q with the SEC.
But although the cash flow statement went missing, Deltic did provide the two most crucial numbers we look for in that document: cash generated from operations, and capital expenditures. Year to date, Deltic generated $28.9 million in cash from operations vs. $33.6 million a year ago.
Conversely, the first nine months of 2004 saw Deltic invest just $16.5 million in capital expenditures, but this year, that number rose to $25.2 million. Last year's first three quarters' $17.1 million in free cash flow (FCF) has dried up, and FCF presently stands at only $3.7 million. Contrast that FCF decline with the apparent year-to-date improvement in GAAP profits (up 56% to $12.1 million); or contrast the $12.1 million in GAAP profits with the $3.7 million in real cash profits, and the cry "Timber!" should echo in investors' brains.
Why might a Fool prefer Plum Creek over Deltic? Count the ways, as laid out in the Motley Fool's recent Stock Madness Tournament:
- Stock Madness 2005: Plum Creek Timber vs. Apple Computer
- Stock Madness 2005: Protein Design Labs vs. Plum Creek Timber
- Stock Madness 2005: Plum Creek Timber vs. Audible
- Stock Madness 2005: Headwaters vs. Plum Creek
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Fool contributor Rich Smith has no position in any of the companies mentioned in this article.