Psst! Hey, buddy, wanna buy a growth stock? Have I got the one for you: Delta & Pine Land (NYSE:DLP). It grows, um, cotton and soybean seeds. Hey, wait! Come back! It's also projected to grow earnings more than 25% next year.
Now that I've got your attention, perhaps you'll be interested to learn that Delta reports its fiscal Q2 2006 earnings tomorrow. Read on to learn how to put the numbers in context.
What analysts say:
- Buy, Sell, or Waffle? Only three analysts follow Delta, and they say buy/sell two-to-one.
- Revenues. Quarterly revenues are expected to rise 11%, to $133.5 million, when Delta reports tomorrow.
- Earnings. Profits are expected to come in 8% lower, however, down to $0.46 per share.
What management says:
Unsurprising for a farming company, Delta calls its business "seasonal" and warns investors to expect losses in the first and fourth quarters. Fortunately, tomorrow's news will be on fiscal Q2, and next quarter will also be one of the "good" quarters -- in fact, fiscal Q3 is Delta's most historically profitable quarter.
As for how profitable this year will be, Delta says that depends on three things: how much acreage of cotton seed it plants in the U.S., how much high-margin product it sells, and how its margins fare. That gives us some reason to worry, because cotton acreage is expected to be flat this year, and sales volumes in Australia have been hurt by increased competition.
What management does:
When considering Delta's margin trends, it's best to focus on rolling gross and operating margins and be leery of drawing conclusions from the net results. Delta's rolling net suffered from a $38.5 million one-time charge taken in the August 2004 quarter. The rebound you see in August 2005 resulted from the previous year's charge falling off the chart.
|
Margins % |
8/04 |
11/04 |
2/05 |
5/05 |
8/05 |
11/05 |
|---|---|---|---|---|---|---|
|
Gross |
34.9 |
35.5 |
35.7 |
36.4 |
36.1 |
35.2 |
|
Op. |
18.1 |
18.7 |
20.3 |
20.7 |
18.8 |
16.7 |
|
Net |
1.7 |
2.5 |
5.1 |
6.1 |
11.6 |
10.4 |
One Fool says:
Both gross margins have been sliding for three quarters now. Last quarter's net loss, which was more than twice as large as the previous year's Q1 loss, owed less to one-time charges (which were $0.03 in both the 2005 and 2006 fiscal first quarters) than to a precipitous 44% decline in sales. That said, sales in the first and fourth quarters pale in significance to the sales that Delta racks up in its profitable quarters. If Delta reports selling well tomorrow, and if it promises more of the same in fiscal Q3, then last quarter's loss will soon be forgotten.
Competitors:
Delta is in the unenviable position of "competing" with two of the firms it licenses technology from: Monsanto (NYSE:MON) and DuPont (NYSE:DD). Its primary pure competitor appears to be Germany's Bayer (NYSE:BAY).
Fool contributor Rich Smith does not own shares of any company named above.
