Investors, it's time to get a grip. With the weekend ahead of us and the markets closed for Memorial Day on Monday, today we look four days into the future at the earnings news due out Tuesday from "material handling products" manufacturer Columbus McKinnon (NASDAQ:CMCO). CK reports its fiscal Q4 and full-year 2006 numbers before market open.
What analysts say:
- Buy, sell, or waffle? Three analysts follow Columbus McKinnon, with two of them rating it a buy and one a hold.
- Revenues. Quarterly sales are expected to rise 6% to $153.4 million.
- Earnings. Quarterly profits are predicted to rise 31% to $0.46 per share.
What management says:
In its last earnings release back in January, CK boasted of how its "operating leverage, lean manufacturing, operational efficiencies, and improved pricing" were widening gross margins and racking up operating profits. CEO Timothy Tevens cited a "strong" world economy (which is driving demand for his company's products) as one factor that's giving the company the freedom to "improve" (i.e., raise) its prices. What's more, in the outlook section of the earnings release, Tevens called sales trends "favorable" and predicted that product sales would continue rising in the mid- to high-single-digit range.
What management does:
That jibes pretty well with what we've been seeing in the firm's margin trends. Over the past 18 months, rolling gross margins have increased 130 basis points (that's the "improved pricing" part of Tevens' observation). Rolling operating and net margins have done even better (there's your "operating leverage" and "operational efficiencies"). End result: At last report, CK was more than three times as profitable at the end of 2005 as it had been in late 2004.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
24.2 |
24.6 |
24.5 |
24.5 |
24.9 |
25.5 |
|
Op. |
7.8 |
8.3 |
8.1 |
8.5 |
9 |
9.4 |
|
Net |
1.1 |
1.4 |
3.2 |
3.9 |
3.9 |
3.7 |
One Fool says:
Last quarter, CK's earnings release contained news that would ordinarily strike fear into the heart of the value investor: The weighted average share count (diluted) leapt by nearly 2 million shares, bringing the total stock dilution over the past year to 17%. Fortunately, we know why that happened, and it's not entirely a bad thing. In November, CK conducted a follow-on offering of stock and used the proceeds to pay down over $40 million worth of debt. In all, long-term debt has declined by $63 million over the past 12 months. Expect that to keep margins rising in the future as the firm divests itself of the need to pay interest on that debt.
As for tomorrow, let's look at one other improvement management highlighted last quarter: working capital management. Over the past six months, CK's sales have grown at 8%, while inventories declined 2% on average and accounts receivable rose just 4%. These kinds of numbers don't just back up Tevens' assertion that its goods are in demand -- they also produce real cash profits on the balance sheet. While many investors will look at the mere $4.7 million in profits that CK racked up during this period and yawn, Fools see the $25.2 million in free cash flow that resulted from these improvements and applaud. Let's hope the company can produce similarly good numbers on Tuesday.
Columbus McKinnon's competitors include:
- Cooper Industries (NYSE:CBE)
- Ingersoll-Rand (NYSE:IR)
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Fool contributor Rich Smith does not own shares of any company named above.
