Playboy (NYSE:PLA) is usually associated with the beautiful and sexy things in life. But it didn't have much of either going for it during Thursday's trading session, when its stock took a hit. The culprit? A first-quarter earnings release in which the company expressed reservations about its profit outlook for the year.
That kind of sentiment is never welcome on Wall Street. But before we get too distracted by Mr. Market's short-term thinking, let's check out the data.
Net revenues decreased 1.7% to $82.1 million. Operating income declined 68% to $3.5 million, and net income was $0.8 million ($0.02 per diluted share) versus a net loss of $13.1 million ($0.39 per diluted share) one year ago, the latter statistic including a debt-extinguishment charge equal to $19.3 million.
So maybe Mr. Market has a bit of a case here. The quarter was anything but glamorous. The valuable entertainment segment, which the TV and online businesses fall under, suffered through a 34% decline in operating income, in part because of a transition to video-on-demand paradigms. In addition, the loss of channel space on the DirectTV (NYSE:DTV) platform to some New Frontier Media (NASDAQ:NOOF) programming will hinder revenues going forward. The publishing segment struggled yet again -- its operating loss widened many times over, to $2.3 million. Licensing did enjoy an increase, but then again, so did the expenses associated with corporate promotions and administrative services.
I can understand the stock being pressured because of this report. Yet I've always liked the Playboy brand and believed in its long-term prospects. To that end, let me point out an interesting thing regarding free cash flow. Although there was no cash-flow statement attached to the most recent release, I looked up some historical cash-flow history using the latest 10-K document.
|
Metric |
2005 |
2004 |
2003 |
|---|---|---|---|
|
Net Cash From Operating Activities |
$27.4M |
$16.4M |
$4.9M |
|
Capital Expenditures |
$5.6M |
$2.9M |
$2.3M |
|
Free Cash Flow |
$21.8M |
$13.5M |
$2.6M |
It's not as if Playboy hasn't been generating any free cash flow the past few years. And even with acquisition activity of $8.3 million in 2005, the company still had a lot of free cash at its disposal. Eventually, Playboy might become inclined to do some shareholder-friendly things like buybacks and/or dividend payouts.
Right now, though, Playboy needs to get its act together and produce compelling adult content -- not only for its TV programming, but for its publishing content as well. The company may have done well with its cash flow over the years, but there is still work to be done. Getting the publishing segment moving again may seem impossible, but it may simply be a matter of further editorial overhauls, such as making the magazine seem hip again.
Playboy's shares lost 15% of their value yesterday and closed at less than $11 a stub. As I've previously stated here and in many other Takes, I remain bullish on the long-term prospects of the company, but I do allow that this stock would be more appropriate for the speculative section of a portfolio.
For more on Playboy Enterprises:
Fool contributor Steven Mallas owns none of the companies mentioned. He'd like to wish Mr. Hugh Marston Hefner a belated happy 80th birthday. The Fool has a disclosure policy.
