Big-screen electronics king Daktronics (NASDAQ:DAKT) reports Q4 and full-year 2006 earnings results tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
- Buy, sell, or waffle? Four analysts follow Daktronics, splitting their rates evenly between buy and sell.
- Revenues. Analysts expect to see 29% quarterly sales growth reported tomorrow. $79.3 million is the target.
- Earnings. Profits are predicted to shoot up 80% to $0.27 per share.
What management says:
Daktronics has traveled a long road to recovery, but it's already moved far toward the goal of being a growth company again. Last quarter, Daktronics posted 40% revenue growth and its third consecutive quarter of 20%-plus revenue growth. According to management, the resurgent sales are bringing with them their own set of problems, but the kind of problems investors should be thrilled to see.
Said CEO Jim Morgan: "While we have been running essentially at capacity, we have continued to increase our capacity by adding personnel and equipment over the past quarter. We are looking forward to bringing additional manufacturing space on line in first quarter fiscal 2007. We believe that with the new space, we will be able to gain efficiencies through improved process flow."
In other words, sales are skyrocketing, and what the company aims to do now is to combine skyrocketing sales with improved margins to yield a bumper crop of profits.
What management does:
That sounds good, but so far, the company's hoped-for "improved process flow" -- and the resulting margin improvements -- haven't arrived yet. Gross, operating, and net margins all remain below where they were 18 months ago.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
33.2 |
32.6 |
31.8 |
30.9 |
29.8 |
30 |
|
Op. |
11.4 |
10.5 |
8.4 |
7.7 |
7.3 |
8.2 |
|
Net |
7.7 |
7.4 |
6.8 |
6.3 |
5.9 |
6 |
One Fool says:
Over the last six months, we've watched Daktronics' sales rise 20% on average, but the cost of goods sold was up 26% and operating costs rose 22%. Thus, margins continue to be compressed as the company works to convert its huge rush of new business into shareholder profits.
Meanwhile, working capital management remains weak. Accounts receivable grew 74% during this same period, while inventories ballooned 58% (although it's worth noting that raw materials and works-in-progress are by far Daktronics' two fastest-growing categories of inventory). As a result, the company has been free cash flow negative for the last two quarters.
Put it all together, and I can't say that all of Daktronics' problems are behind it yet. There are plenty of inefficiencies remaining to be wrung out of the system. But with backlog mounting and sales rising, big profits could be on the horizon for this company if it can accomplish what it promised to last quarter.
Competitors:
For the most part, Daktronics' competitors are not U.S.-listed companies. The two rivals you've most likely heard of are BARCO and BillBoard Video.
Read more about Daktronics' past troubles and related matters in:
- Get Ready to Buy
- Daktronics: More of the Same?
- Short Circuit From Daktronics
- Daktronics' Jumbled Playback
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Fool contributor Rich Smith does not own shares of any company named above.
