You've seen its armored trucks. You've salivated over the bags of cash its drivers carry. The trucks are usually the unfortunate targets in heist movies. Yes, it's Brink's (NYSE:BCO), and it still does pretty much what it has always done: deliver cold, hard bundles of cash safe and sound to their appointed destinations. The company has also added home security and global freight transportation to its list of services, the latter making Brink's a direct competitor to FedEx (NYSE:FDX) and UPS (NYSE:UPS).
Brink's, having leveraged its long-standing brand name into a $1.75 billion market cap, collected more than $4.7 billion in revenue during the past fiscal year, a year-over-year increase of almost 20%. Net income from continuing operations shot up from $18.2 million to $100.6 million. The bottom line got a big boost from four factors, the largest of which was a 75% tax rate in 2003 compared with 38% this year, thanks to changes in valuation allowances for deferred tax assets. The other three factors were currency exchange rates, a big pickup in the international economy, and increased freight shipments to Asia. Investors should take note, however, that North American business, from which the company derives 38% of its revenue, was soft.
The seemingly strong current operations, though, are held back by some liabilities from discontinued operations. In 2002 and 2003, the company sold off its interests in coal, natural gas, timber, and gold operations. The coal business, in particular, saddled the company with ongoing pension and black-lung obligations, as well as other costs.
Two things ultimately turn me off to an investment in Brink's. One is a very complex 10-K and balance sheet. It's hard to accurately determine black-lung obligations. And I suppose if you understood pension accounting (and nobody really does), you wouldn't be as perplexed. The other problem is the enormous levels of capital expenditures the company must make to keep its business going. Although it generates tremendous operating cash flow, it also spends, spends, and spends because of (1) the equipment, labor, and related overhead costs associated with system installations for new subscribers; (2) the capital-intensive nature of the armored-car business; and (3) the relatively high costs of transporting freight.
The net results are relatively low profit margins and free cash flow. With thousands of stocks to choose from, investors should look somewhere else for a place to stash their investment cash.
For more on Brink's, read why W.D. Crotty also thinks the company's reports are confusing.
Fool contributor Lawrence Meyers transports his cash in the safest possible way: in his shoes. He's easily confused, though, so do your own research before investing.
