Weight Watchers (NYSE:WTW) stock hit a 52-week low August 2 on dismal second-quarter results. The weight-management company faces increased online competition. While the outlook for 2013 is getting gloomier by the day, it still expects to make at least $3.55 per share this year. This begs the question of whether you should you buy its stock?
The Bad News
When a stock drops 19% in just two hours of trading you know there's something not quite right. So let's go over the negatives of its second quarter report:
Weight Watchers announced that CEO Dave Kirchhoff was leaving the company to pursue other opportunities. Normally, when a CEO departs a company after having served in the position for almost seven years and in other positions for another seven before that it's not a problem. However, when the announcement comes after bad earnings you have to wonder about the timing.
Revenue in the second quarter declined 3.9% on a constant currency basis to $465.1 million. Most of the decline was a result of weakness in its North America and UK meetings business. This is something that's been happening over the past few quarters as more of its revenue is generated online. The company uses "paid weeks" as its key metric for assessing its business. In recent years Weight Watchers has transitioned from a pay-as-you-go weekly membership to a monthly pass. Over 75% of its meeting paid weeks are monthly passes. In Q2, its paid weeks from meetings declined by 10.4%.
SEE: How To Evaluate The Quality Of EPS
The decline in paid weeks for meetings goes hand-in-hand with a decline in attendance. In the second quarter its attendance dropped 14.7% year-over-year to 11.9 million. Like traffic in a retail store; lower numbers is not what you want to see. Paid weeks are what retailers call conversion.
One of the most disturbing numbers in the second quarter was actually positive. Its online paid weeks increased by 4.4% year-over-year to 31.8 million. In the same quarter last year its online paid weeks increased 30.2% to 30.4 million. Between 2008 and 2012, its online paid weeks increased at a compounded annual rate of 30.1%. Given the number of active online subscribers--which it converts into revenue through paid weeks--grew by just 1.1% in the quarter, it appears that its internet business has stalled and the online competition mentioned in the opening has something to do with it.
Its net income in the first half of 2013 declined 14% to $113.7 million. Included in the decline was a $21.7 million charge for the early extinguishment of debt. In April, Weight Watchers announced that it had consolidated its $2.4 billion in long-term debt into two loans and one revolver--$2.1 billion, $300 million and $250 million--down from six loans and two revolvers. To do this it's added approximately $18 million per annum in interest expense.
SEE: Asses Shareholder Wealth With EPS
Good News
The man taking over as CEO is Jim Chambers, a 30-year veteran in the food business, hired in January as COO. In the past Chambers has been a chief executive of both Kraft Foods' (Nasdaq:KRFT) U.S. snacks business as well as Mondelez International's (Nasdaq:MDLZ) North American Cadbury operations. In his job as COO for the last seven months, he'll be more than able to handle the new responsibilities.
In terms of paid weeks on the meetings side of the business it's important to look at the numbers more closely. They declined by 10.4% in the first quarter and 9.3% in the first half. Those aren't good to be sure. If you look at it from a revenue standpoint--it's not the end of the world. Its revenue from meeting fees in the second quarter was $231.2 million, down $17.3 million in the same quarter last year. However, the revenue per paid week was $9.55, 35 cents higher than a year earlier. It might be losing attendance and paid weeks but it's managing to keep the revenue flowing in the right direction. (L8)
Jim Chambers biggest task as CEO is to get its online business back on track. What that involves I haven't a clue. However, its internet business is still a gold mine. Its gross margin for its internet revenue in Q2 was 87.5%, only 50 basis points less than in Q2 2012. I'm sure there are cost control initiatives that can't recapture any lost margins. More important is reigniting its growth engine and the 30% year-over-year increases shareholders have become accustomed to. That's going to take time.
Bottom Line
In fiscal 2012 Weight Watchers repurchased 18.3 million shares of its stock for $82 each reducing the total count by 18% to 60.9 million. On $100 million in net earnings, the buyback adds 38 cents in additional profit per share. Unfortunately, if it had waited a year, it could have saved itself about $800 million. This should be considered outgoing CEO Dave Kirchhoff's biggest mistake while in the top job. It's incumbent upon Jim Chambers that he avoid the same mistake…for shareholder's sake.
As recently as March 2012, Weight Watchers stock was over $80. Only once in its 12-year history as a public company has its stock traded below $30 and that was for two years starting in October 2008 through October 2010. Otherwise, it's performed decently enough. (L11)
Weight Watchers expects to deliver at least $3.55 per share in 2013. That's a P/E around 11. Historically, it's never had a P/E below this bellwether number. When everyone else is fearful--you should be fearless. I don't know what Jim Chambers has up his sleeve to right the ship but I really don't see it being nearly as difficult as a 20% plunge would seem to suggest.
If you've got 18-24 months--I'd be a buyer of its stock. Obesity's not getting solved with a few free apps and an activity monitor. Weight Watchers definitely has its work cut out for it. Herbalife (NYSE:HLF) was dead in the water at the beginning of 2013--look how it's turned around. Weight Watchers is a much better company. Long-term it will do just fine.
Thursday, October 31, 2013
Monday, October 28, 2013
Top Penny Companies To Own In Right Now
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Spectra Energy (NYSE: SE ) climbed 10% today after announcing that it will drop down all U.S. transmission and storage assets to its publicly traded MLP, Spectra Energy Partners (NYSE: SEP ) .
So what: The move will allow Spectra Energy to accelerate the growth of its dividend and should put it in a stronger financial position to carry out pipeline projects. Of course, Spectra Energy Partners also gained on the news -- up about 5% -- as the dropdown is expected to help boost its own distribution rate as well.
Now what: Spectra Energy now sees annual dividend growth of $0.12 versus its previous commitment of $0.08, while Spectra Energy Partners will increase its quarterly distribution rate to a penny versus the current three quarters of a cent. "We fully expect this move to be a win for investors in both SE and SEP, and it will give us a more robust MLP to advance our growth opportunities," said Spectra Energy CEO Greg Ebel. Of course, with Spectra Energy shares hitting a new 52-week high today -- now up about 25% over the past six months -- and trading at a 20-plus forward P/E, much of that growth might already be baked into the valuation. ���
Top Penny Companies To Own In Right Now: TranSwitch Corporation(TXCC)
Transwitch Corporation designs, develops, and supplies semiconductor and intellectual property solutions for voice, data, and video communications equipment. The company provides integrated multi-core network processor system-on-a-chip (SoC) and software solutions for fixed, 3G and 4G mobile, VoIP, and multimedia infrastructures. It offers converged network infrastructure products, including infrastructure VoIP processors comprising Entropia series of processors for wire-line and wireless carrier equipment; EoS/EoPDH mappers and framers for formats and data speeds in the access portion of the network; tributary switches that enable traffic to be switched or re-arranged; and carrier Ethernet solutions consisting of Ethernet controllers and switches, as well as circuit emulation and clock recovery devices. The company also provides FTTx protocol processors, such as mustang, a system-on-chip solution for EPON optical network unit equipment; COLT processor, a system-on-chip so lution for the optical line terminator equipment; and Diplomat-ONT product, an integrated SoC solution for GPON ONU applications, as well as access VoIP processors and access controllers. In addition, it offers broadband customer premises equipment, including multi-service communications processors comprising Atlanta processor, a multi-service SoC for customer premises equipment that supports toll-quality telephone voice, fax, and routing functionality; and HDMI, displayport, HDP, and Ethernet IP cores for consumer electronics, home network equipment, and industrial and automotive applications. The company serves public network systems OEMs, WAN and LAN equipment OEMs, Internet-oriented OEMs, and communications test and performance measurement equipment OEMs, as well as government, university, and private laboratories. It sells its products through direct sales force, independent distributors, and sales representatives. The company was founded in 1988 and is headquartered in Shelton, Connecticut.
Top Penny Companies To Own In Right Now: Flexsteel Industries Inc.(FLXS)
Flexsteel Industries, Inc., together with its subsidiaries, engages in the manufacture, import, and market of residential and commercial upholstered and wooden furniture products in the United States. Its upholstered and wooden furniture products include sofas, loveseats, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, and bedroom furniture. The company distributes its products for use in home, office, hotel, and other commercial applications through its sales force and various independent representatives, as well as to various national and regional chains. Flexsteel Industries, Inc. was founded in 1929 and is based in Dubuque, Iowa.
Advisors' Opinion:- [By Dividends4Life]
Memberships and Peers: LEG is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers��Index and a Dividend Champion. The company's peer group includes: Hooker Furniture Corp. (HOFT) with a 2.4% yield, Flexsteel Industries Inc. (FLXS) with a 2.7% yield and Ethan Allen Interiors Inc. (ETH) with a 1.4% yield.
- [By Seth Jayson]
Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Flexsteel Industries (Nasdaq: FLXS ) , whose recent revenue and earnings are plotted below.
Best Dividend Stocks To Watch Right Now: Integrated Silicon Solution Inc.(ISSI)
Integrated Silicon Solution, Inc., a fabless semiconductor company, designs and markets integrated circuits for digital consumer electronics, networking and telecommunications, mobile communications, automotive electronics, and industrial markets. Its primary products include low and medium density DRAM; and high speed and low power SRAM. The company?s low and medium density DRAM products are used in wireless local area networks (WLANs), base stations, networking switches and routers, fiber to the home (FTTH), DSL and cable modems, set top boxes, digital cameras, MP3, flat panel TVs, LCD TVs, HDTVs, video phones, Voice over Internet Protocol, printers, disk drives, tape drives, audio/video equipment, instrumentation, global positioning systems (GPS), telematics, infotainment, smart meters, and other applications. Its SRAM products are used in WLANs, cell phones, base stations, networking switches and routers, FTTH, DSL modems, LCD TVs, set-top boxes, GPS systems, instrumen tation, engine control systems, medical equipment, telematics, audio and video equipment, satellite radio, POS terminals, fax machines, copiers, tape drives, and other applications. Integrated Silicon Solution, Inc. also designs and markets application specific standard products, including high performance serial EEPROMs for use in TVs, networking systems, modems, telephone sets, security systems, video games, automobiles, and other consumer products; and SmartCards that have applications in transportation passes, payment cards, health care cards, and other cards that store secure data. The company markets and sells its products in Asia, the United States, and Europe through direct sales force, independent sales representatives, and distributors. Integrated Silicon Solution, Inc. was founded in 1988 and is headquartered in San Jose, California.
Advisors' Opinion:- [By Seth Jayson]
Basic guidelines
In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized. Is the current inventory situation at Integrated Silicon Solution (Nasdaq: ISSI ) out of line? To figure that out, start by comparing the company's inventory growth to sales growth. How is Integrated Silicon Solution doing by this quick checkup? At first glance, not so great. Trailing-12-month revenue increased 7.0%, and inventory increased 43.7%. Comparing the latest quarter to the prior-year quarter, the story looks potentially problematic. Revenue grew 20.0%, and inventory grew 43.7%. Over the sequential quarterly period, the trend looks OK but not great. Revenue dropped 1.8%, and inventory dropped 0.8%.
Top Penny Companies To Own In Right Now: Synergetics USA Inc.(SURG)
Synergetics USA, Inc., a medical device company, engages in the design, manufacture, and marketing of microsurgical instruments and consumables primarily for ophthalmology and neurosurgery markets in the United States and internationally. The company?s product lines focus upon precision engineered, microsurgical, handheld devices, and the microscopic delivery of laser energy, ultrasound, electrosurgery, aspiration, illumination and irrigation that are delivered in multiple combinations. It offers retinal surgical items, including handheld disposable and reusable forceps and scissors, fiberoptics for illumination and photocoagulation, cannulas, scrapers, and other reusable and disposable surgical devices. The company also provides bipolar electrosurgical generators; lesion generators used for minimally invasive pain treatment; and directional laser probes, as well as offers gauge instrumentation to the vitreoretinal surgical market. It sells its products through direct sale s employees, distributors, and independent sales representatives. The company was founded in 1991 and is headquartered in O?Fallon, Missouri.
Advisors' Opinion:- [By Monica Gerson]
Synergetics USA (NASDAQ: SURG) is projected to post its Q4 earnings at $0.06 per share on revenue of $17.01 million.
Team (NYSE: TISI) is expected to post its Q1 earnings at $0.36 per share on revenue of $176.70 million.
Top Penny Companies To Own In Right Now: Preformed Line Products Company(PLPC)
Preformed Line Products Company, together with its subsidiaries, designs and manufactures products and systems used in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, and information industries worldwide. The company offers formed wire and related hardware products to support, protect, terminate, and secure power conductor and communication cables and to control cable dynamics. These products also include hardware for supporting and protecting transmission conductors, spacers, spacer-dampers, stockbridge dampers, corona suppression devices, and various compression fittings for dead-end applications. It also provides protective closures, which include splice cases to protect fixed line communication networks, such as copper cable or fiber optic cable from moisture, environmental hazards, and other potential contaminants. In addition, the company offers data communication cabinets that are used in high -speed data systems to hold and protect electronic equipment; plastic products, including guy markers, tree guards, fiber optic cable markers, and pedestal markers to identify power conductors, communication cables, and guy wires; and other products, such as hardware assemblies, pole line hardware, resale products, underground connectors, solar hardware systems, and urethane products, which are used by energy, renewable energy, communications, cable, and special industries. Its customers include public and private energy utilities, communication companies, cable operators, financial institutions, governmental agencies, contractors and subcontractors, distributors, and value-added resellers. The company markets its products through direct sales force and manufacturing representatives. Preformed Line Products Company was founded in 1947 and is headquartered in Mayfield Village, Ohio.
Top Penny Companies To Own In Right Now: Mercer International Inc.(MERC)
Mercer International Inc., together with its subsidiaries, manufactures and sells pulp produced from wood chips and pulp logs. The company offers northern bleached softwood kraft (NBSK) pulp and market pulp. Mercer International sells its products primarily in Europe, Asia, and North America. The company was founded in 1968 and is based in Vancouver, Canada.
Top Penny Companies To Own In Right Now: Micron Technology Inc.(MU)
Micron Technology, Inc., together with its subsidiaries, engages in the manufacture and marketing of semiconductor devices worldwide. Its products include dynamic random access memory (DRAM) products that provide data storage and retrieval, which include DDR2 and DDR3; and other specialty DRAM memory products, including DDR, SDRAM, DDR and DDR2 mobile low power DRAM, pseudo-static RAM, and reduced latency DRAM. The company also offers NAND flash memory products, which are electrically re-writeable and non-volatile semiconductor devices that retain content when power is turned off. In addition, it provides NOR flash memory products that are electrically re-writeable and non-volatile semiconductor memory devices; phase change memory products; and image sensor products. Micron Technology?s products are used in a range of electronic applications, including personal computers, workstations, network servers, mobile phones, flash memory cards, USB storage devices, digital still c ameras, MP3/4 players, and in automotive applications. It sells its products to original equipment manufacturers and retailers through internal sales force, independent sales representatives, and distributors, as well as through a Web-based customer direct sales channel. The company was founded in 1978 and is headquartered in Boise, Idaho.
Advisors' Opinion:- [By Monica Gerson]
Analysts are expecting Micron Technology (NASDAQ: MU) to have earned $0.25 per share on revenue of $2.71 billion in the fourth quarter. Micron shares rose 1.10% to $18.35 in after-hours trading.
- [By Jon C. Ogg]
Stern Agee reports that there is potential for a minor DRAM-NAND disruption in Hynix Quxi supply, which would be a positive for both SanDisk Corp. (NASDAQ: SNDK) and Micron Technology Inc. (NASDAQ: MU). The report is based mostly on unconfirmed news of smoke at the Hynix’s Wuxi China fab.
- [By Russ Fischer]
Since barely a week before the show, Samsung (SSNLF.PK) announced that it was "in production" on a new 3D NAND process. Since 3D NAND is considered the holy grail of NAND technology of the future, you would think that Samsung would be a shoe-in for the product of the year at the 2013 Flash Summit. And If you though that, you would have been wrong. The actual winner of the Best of Show award was Micron's (MU) new 16nm planar NAND memory made with the HKMG (High K Metal Gate) process. In order for Micron to have won this award, the new 16nm must be a more elegant process than we thought.
- [By Genesis Housing]
This is akin to writing a bear note on Apple (AAPL) but ignoring the iPhone, or Micron (MU) but ignoring Elpida (ELPDF.PK).
Sell side research based on incomplete analysis that calls into question a company's cash flows and cash position does a disservice to investors who might be turned off looking into the investment case of Nokia. To present such obviously incomplete analysis and make conclusions that will influence investors is an analogy for many of the misgivings people have about the way the sell side operates. It also gives credence to other more innovative ways to collect and extract insight on industries and businesses such as Seeking Alpha.
Top Penny Companies To Own In Right Now: Grupo Radio Centro S.A. de C.V.(RC)
Grupo Radio Centro, S.A.B. de C.V., a radio broadcasting company, through its subsidiaries, engages in the production and broadcasting of music, entertainment, news, and special event programs in Mexico. The company owns and operates 15 radio stations, which comprise 5 AM and 6 FM stations in Mexico City, 2 AM stations in Guadalajara and Monterrey, and 1 FM station in Los Angeles, as well as 1 AM radio station in Mexico City that is operated and managed by a third party. It also operates Organizaci
Saturday, October 26, 2013
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