Another year, another penny.
It's a new fiscal year for post-Bubble penny stock JDS Uniphase (NASDAQ:JDSU), which reports its fiscal first-quarter 2006 earnings after the close of trading tomorrow. Once again -- and as seems just terribly appropriate -- analysts are all quibbling over JDS's pennies. Tomorrow, for instance, they expect the company to report a penny-a-share loss. Looking farther out, they long to see JDS earn a penny of profit before fiscal 2007 begins.
Which isn't to say that business isn't booming at JDS -- it is, in a manner of speaking. Analysts predict that by tomorrow afternoon, we'll hear the pleasant news that JDS grew its revenues by an astounding 28.5% year over year, that it made a cool $250 million in sales during the quarter just ended (and yes, that after selling all that stuff, it still couldn't earn a profit).
The reason that JDS's sales strength doesn't translate into profits growth is that its extra sales are "inorganic." We'll probably hear tomorrow that little of the sales increase came from JDS proper. Rather, we'll discover that almost the entire sales increase -- if not all of it -- came about as a result of recent acquiree Acterna's sales being consolidated with those of Acterna's new owner. At least, that's what the company suggested would happen in its last earnings report.
Sadly, that also suggests that for JDS investors, tomorrow's news will amount to little more than an announcement that their waiting game must play on for yet another quarter. Absent organic sales growth or profits, investors must resign themselves to watch the company's pile of cash shrink and just hope it doesn't shrink too quickly. In fiscal 2005 (ended in June), JDS burned $177 million in free cash flow, leaving the company with just $838 million in net cash (cash and equivalents minus long-term debt.) The purchase price for Acterna, which was an all-cash deal, should reduce that cash pile by another $450 million, and the past three months of negative free cash flow by about $44 million more.
Those numbers explain why I predicted three months ago that tomorrow's press release would tell us, among other things, that JDS has just $350 million or so worth of net cash left on its balance sheet. That's the number to focus on. The more net cash JDS reports above $350 million, the longer its lease on life before it must start generating cash; the less cash it has, the more dire the firm's straits.
For more JDS-related Foolishness, read:
- JDS Uniphase's Accounting Woes
- JDS Makes a Withdrawal
- JDS Uniphase Buys Something
- More Struggles for JDS Uniphase
Fool contributor Rich Smith does not own shares in JDS Uniphase.
