Manufactured housing company Champion Enterprises
What analysts say:
- Buy, sell, or waffle? Half a dozen analysts follow Champion. Five of them rate it a buy, and one a hold.
- Revenues. On average, they think Champion's sales slid 13.5% to $299.7 million.
- Earnings. They predict roughly break-even results, down slightly from $0.18 per share last year.
What management says:
The big news at Champion this quarter -- such as it was -- is that it lost its general counsel, John Collins, to a "restructuring advisory firm" by the name of AlixPartners. Although the poaching took place nearly two months ago, Champion has not yet announced finding a replacement.
This news came out just a week after Champion released its fourth-quarter news, in which it described how the housing market's "worst decline since 1991, with housing starts down 13 percent, and sales of existing homes fell over 8 percent for the year," combined with a falloff in FEMA/hurricane-related sales, resulted in a 20% decline in quarterly sales, and a 40% decline in quarterly profits. Characterizing its business as facing "increasingly difficult market conditions" as 2006 progressed, CEO William Griffiths said nothing to suggest that things are improving in 2007.
What management does:
Champion's margin trends repeat this story in numerical form, as we've watched rolling gross and operating margins decline for three straight quarters. As for the leap in net margins, well, I've said it before and I'll say it again: This is nothing more than the result of a $108 million tax benefit that the firm booked in the quarter ended in July. As such, today's report will be the last one in which we see it inflate the firm's net -- then it's back to low-single digits for Champion.
|
10/05 |
12/05 |
4/06 |
7/06 |
9/06 |
12/06 |
|
|---|---|---|---|---|---|---|
|
Gross |
17.0% |
17.0% |
17.0% |
16.5% |
16.3% |
15.9% |
|
Operating |
5.3% |
5.6% |
5.6% |
5.2% |
4.8% |
4.7% |
|
Net |
2.6% |
3.0% |
3.5% |
10.9% |
10.3% |
10.1% |
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
In fact, it could be even worse than that on the bottom line. According to Griffiths, Champion has "aggressively addressed capacity issues throughout the U.S. as market conditions have changed." What's more, although Champion has made no filing with the SEC to announce this, news reports surfaced in March that the company is in talks to sell off an already-shuttered factory in Sanford, Mich. If the firm has to book a loss on that sale, this could yield a charge to earnings that will further damage Champion's net.
The good news is that as a result of its "aggressive" efforts to reduce capacity to fit demand, Champion has done an admirable job of keeping its inventories in line with falling sales. More than that -- in the second half of 2006, as sales slid 9% year over year, the company sold down its inventories by 15% -- putting the firm ahead of the curve. Side benefit: As sales and earnings fell, Champion ended the year with free cash flow up 59% in comparison with 2005. Way to manage a downturn, Champion.
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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.
