Analysis of Gentner Communications 2Q 99 Earnings
Report
By Jon DeBry,
Last Update: 11:00 AM MT Jan 14, 1999
SALT LAKE CITY, Utah - Gentner Communications reported another strong quarter today, with
sales up 31% and net income up 80% compared to last year. If you adjust last year's
earnings for income taxes (they paid no tax last year), net income actually increased
190%.
More importantly, Gentner showed confidence in the remainder of the year by upping
fiscal-year 1999 estimates to 23 to 26 cents per share. With the 12 cents already
booked for the first six months of this year, they are projecting 11 to 14 cents for
the next six months. As cautious as Gentner has been in the past regarding earnings
estimates, and given their track record of beating estimates, they should easily be able
to achieve these numbers.
Gentner's gross margin improved slightly from 54.2 to 55%, which matches the highest
gross margin in the last three years. Expenses declined slightly.
The balance sheet continued to improve - just about every penny of earnings went
straight into their pile of cash, which now stands at $2.5 million, up from $2 million a
quarter ago. Inventories dropped again, now down to $2.2 million from $2.5
million last quarter. Long term debt dropped from $325 thousand to $265 thousand,
and could easily be paid off if Gentner had the urge.
On the negative side, sequential sales (Q2 vs Q1) dropped 4.5%, the first drop since
the March 1997 quarter. Also, there is a limit to the improvements they can make
regarding inventory reductions and expense controls. At some point, the earnings
growth rate will slow to the sales growth rate, which stood at 39% for the first six
months of FY 99, but has historically been in the 20 to 30% range.
On the other hand, the foray into video-conferencing has HUGE potential, especially
given Gentner's solid reputation and network of dealers. If Gentner's
video-conferencing system catches on, they could accelerate their sales (just look at
Polycom).
The market reaction to the earnings report has been strong - as of this writing, the
stock is up 10% on heavy volume. Even at the current price of $4, the forward P/E,
based on the new estimates, is 15 to 17, which, of course, compares extremely favorably
with their growth rate, with market P/Es, and with competitors' P/Es.
Another positive quarter will give Gentner two straight years of profits. Another
25% increase in the stock price, up to $5, will put Gentner on a whole lot more
fundamental screens. And the current market cap of $30 million is a lot tastier to
an institution than the market cap of $8 million a year ago. Gentner is definitely
going in the right direction <JD>.
Download the latest spreadsheet.
See the conference call notes.
See the press release. |
