In a bid to keep growing, some companies resort to a steady
stream of acquisitions. But appearances can be quite deceptive, as
these deals often come with newly-issued shares and/or rising debt,
both of which can impede per-share profits from growing. This
"inorganic growth" strategy has been the hallmark of
Hain Celestial (Nasdaq: HAIN)
, which, ironically, is a leading purveyor of organic food and
beverages. Every year, Hain makes a few deals and looks like a
growth company, until you see that bottom-line results are often
disappointing.
They're at it again. Hain released fiscal third-quarter results
Wednesday evening that trailed sales and profit forecasts. Indeed,
year-over-year sales fell -16% on an apples-to-apples basis, and
are likely to stay negative in coming quarters, despite the
inclusion of recent acquisitions. Shares are off more than -13% in
Thursday trading.
The negative sales trends come at a time when organic foods have
been in vogue. But organic foods cost more, and many cash-strapped
consumers have been switching back to foods that don't carry the
organic label. Analysts currently expect sales to rebound around
+5% in this fiscal year that begins in July, though that forecast
anticipates continued tuck-in acquisitions. They see profits
rebounding a more robust +15% next year, but that forecast looks
increasingly aggressive, as Hain's acquisitions no longer seem to
boost profits when a higher share count is factored in.
In coming sessions, shares should come under further pressure as
analysts' estimates ratchet lower, and growth-oriented fund
managers move on to stocks that possess real "organic" growth.
|
Company Name (Ticker)
|
Intra-Day Price
|
Market Cap
|
52-Week High
|
52-Week Low
|
2010*
P/E
|
2011*
P/E
|
| Hain Celestial (Nasdaq: HAIN) |
$18.12 |
$740M |
$21.08 |
$14.45 |
16.9 |
14.7 |
| JDS Uniphase (Nasdaq:
JDSU) |
$11.39 |
$2.4B |
$13.95 |
$4.44 |
31.6 |
21.5 |
| Abercrombie & Fitch (
ANF
) |
$41.32 |
$3.6B |
$51.12 |
$22.70 |
22.3 |
15.8 |
| Liz Claiborne (
LIZ
) |
$7.03 |
$660M |
$9.72 |
$2.40 |
Negative |
22.0 |
| *Based on consenus estimates
prior to recent earnings release |
------------------------------------
JDS Uniphase (Nasdaq: JDSU)
was the ultimate poster child for the dot.com implosion ten years
ago. Shares briefly surpassed $1,000 in the Nasdaq meltup, but
eventually made their way down to $2. More recently, shares have
started to perk up again, making it look like JDSU is a Comeback
Kid. But after the company posted weak fiscal third-quarter results
on Wednesday evening, shares are off around -15% today.
This time around, shares look to have suffered a much more
temporary setback. Although fiscal third-quarter sales were a bit
light, the company's salesmen were busy inking new deals, which
should enable JDS Uniphase to post sharply higher results in the
current quarter. It's not often that you see a stock slide while
management issues sales guidance that is more than +10% above
consensus forecasts, and represents a +20% sequential improvement.
So why are investors dumping the stock? In large part, it's a
function of heightened expectations. Investors recently bid up the
stock in hopes of a blow-out quarter. The "whisper number" had JDS
Uniphase bagging sales of around $360 million, well above the
published forecasts of around $340 million. (Actual sales came in
even lower at $332 million).
Despite the weak results, the robust forward outlook from
management should lead analysts' to raise their profit forecasts
for the current quarter by a few cents. And fiscal (June) 2011
profits now look set to be about 20% higher than the current $0.53
a share forecast, based on yet-to-be-revised assumptions for gross
margins and operating expenses. Today's sell-off looks overdone,
and as investors digest an increasingly robust outlook, shares
should move their way back to the 52-week high of $14, which is
some 20% above current levels.
------------------------------------
A host of retailers are taking it on the chin after tepid sales
reports. Same-store sales at
Abercrombie & Fitch (
ANF
)
fell -7%, pushing its shares down by a similar percentage. Retailer
Liz Claiborne (
LIZ
)
stands out as the sector's top laggard, dropping more than -10% on
weak results. Most retailers begin to report quarterly results next
week, and after the robust rebound the sector has posted over the
last year, less-than-stellar results - or an uninspiring forecast -
could lead to profit-taking.
-- David Sterman
Contributor
StreetAuthority
Disclosure: David Sterman does not own shares of any security
mentioned in this article.