Getchermotorsrunning, investors. It's time once again to check in on Italian motorcycle magnate Ducati Motor Holding (NYSE:DMH). The company reports Q4 and full-year 2006 results Thursday, but before the news comes out, let's do a quick engine check on what we might be hearing.
What analysts say:
- Buy, sell, or waffle? Just four analysts still follow the leader of this pack, down two from last quarter. One of them says you should buy; the other three say hold.
- Revenues and earnings. Although quarterly estimates are lacking, the sole U.S.-based analyst following Ducati predicts breakeven earnings for this fiscal year.
What management says:
It appears that Thursday's news will be a bit of an anticlimax, Fools, for Ducati has already given us a look at its Q4 numbers in a preliminary earnings report released last month. Management advised as follows:
- Q4 sales were down 9% year over year at $106.6 million, yielding a $5.2 million loss.
- Full-year sales fell 1% to $405.6 million, and far from breaking even, the firm lost $11.3 million.
These, of course, weren't the numbers management emphasized, focusing instead on a 60% reduction in net debt (to $72.1 million) and a return to positive earnings before interest, taxes, depreciation, and amortization.
What management does:
Ducati's net margins had been hurt by asset writedowns, restructuring costs, and a tax charge in the December quarter. But by now, the rolling results are moving upward as those charges fall off the back end of our trailing-12-month results. That said, margins still aren't looking particularly healthy to this Fool. The rolling gross margin has been falling for at least the last five years, although it does appear to be recovering in recent quarters.
|
9/05 |
12/05 |
3/06 |
6/06 |
9/06 |
12/06 | |
|---|---|---|---|---|---|---|
|
Gross |
30.8% |
27.2% |
28.3% |
29.7% |
31.6% |
23.9% |
|
Operating |
0.6% |
(3.5%) |
(0.8%) |
(1.8%) |
1.4% |
1.6% |
|
Net |
(3.3%) |
(12.9%) |
(11.8%) |
(11.4%) |
(9.1%) |
(2.8%) |
One Fool says:
Since late 2005, Ducati has emphasized four main goals in its turnaround: "improvement of gross margin, reduction of dealer stock [that's 'inventory' to you and me], reduction of fixed costs and working capital."
Focusing on just two of these metrics, inventory and gross margins, Ducati's progress looks mixed. Inventory reduction appears to be progressing well, down by "3000 bikes equivalent to approximately 1 month of sales" in comparison with the end of last year. From a value perspective, inventory is down a good 14% -- considerably more than the decline in sales.
Gross margins are a little trickier. As management calculates things, 2005 was a miserable year in which gross margins were depressed by "amortizations" and "extraordinary devaluation," resulting in a gross margin of just 15.3%. As ordinarily calculated, however, the 2005 gross margin was quite a bit higher -- 27.2%, in fact. Thus we're faced with a situation in which Ducati claims that its 23.9% gross in 2006 represents improvement thanks to "improved product mix, fewer amortizations and the extraordinary devaluation in 2005." Meanwhile, objectively measured, the decline in gross margins continued last year, because revenues minus cost of goods sold resulted in a gross decline of 330 basis points in 2006 from 2005.
I'd love to give Ducati credit for improvement (by its calculations), but from an objective perspective, to me it still looks like things are getting worse.
For more on Ducati, read:
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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.
