For the past year, the stock performance for shoe makers Timberland
Today, Wolverine World Wide reported solid (but not spectacular) fiscal 2005 results. The company's shares are down 4% in mid-Wednesday trading -- which makes this well-run company's valuation increasingly enticing.
For the year, the company's sales were up 7% to $1.06 billion, and earnings per share were up to $1.27 per diluted share, a 16.5% improvement over last year. However, the fourth-quarter numbers were a bit weaker, with year-over-year sales and earnings up only 4.4% and 5.9%, respectively.
The company continued to improve both its gross margin and its earnings before interest and tax (EBIT) margin. For the year, gross margins were 38.2%, compared to last year's 37.7%; the EBIT margin improved to 10.7% from the previous year's 10.1% showing. Wolverine Worldwide's margins have been rising for several years now; in 2002, the company's gross margin was only 35.6%, and its EBIT margin was only 9.3%.
The valuation is the real story here, though. The company didn't provide a cash flow statement with its earnings release, but based on its past cash flow data, I think the company's shares are approaching "buy" territory. Wolverine trades at a P/E of 17.9, but its free cash flow generation is historically higher than its net income. On a trailing-12-month basis, the company has generated $1.37 per share in free cash flow, and it trades at a price-to-free cash flow multiple of 16.5. Furthermore, over the previous three years, the company has averaged slightly higher free cash flow. Free cash flow average $1.41 per share over the past three years, with a price-to-free cash flow multiple of 16. That's not bargain-basement territory, but it might be worth watching.
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