There are certain actions that, when engaged in by the management of any company, can reveal its feelings about shareholders. When management shows a distaste for shareholders via excessive compensation agreements or other such dealings, it can be hard to get excited about the company no matter how well its operations are run.
King Pharmaceuticals
As for its operations, revenue at King declined year over year because of changes in reserves for returned products and increases in wholesale inventory. With the SEC continuing its investigation into King's practices in regards to how it accounts for product returns, it will be interesting to see if this affects the company's future revenue numbers, which all of a sudden stopped growing this quarter, as can be seen below.
Revenue* |
Y-O-Y Growth |
|
---|---|---|
Q3 2006 |
$491.7 |
(5%) |
Q2 2006 |
$499.6 |
8% |
Q1 2006 |
$484.2 |
31% |
Q4 2005 |
$423.3 |
24% |
Because of the reduction in sales and rising expenses, earnings declined 16% to $106 million, or $0.44 per share. Gross margins and operating margins were 78% and 25%, respectively, both down from the third quarter last year.
The other news this quarter for King was its purchase of the pain-relief drug Avinza from Ligand Pharmaceuticals
King has nearly $920 million sitting on its balance sheet, excluding the upcoming purchase of Avinza. Even with $400 million in debt, King's operating cash flows of $127 million for the quarter mean that there will be plenty of money to use for future product acquisitions. Considering that this is King's preferred form of growing sales, I wouldn't be surprised to see more acquisitions this quarter.
My issues with King are that it appears to be a company with stagnating operations, trying to grow sales via licensing or acquiring new drugs, with (at best) a shaky handling of its accounting practices. On that basis, I think I'll pass.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .