The Motley Fool: The Boring Portfolio

ANN ARBOR, Mich. (Sept. 23) -- The Dow was down more than 50 points early in the day but managed to recover for a six-point gain (and a new high of 5895), helped by slightly lower bond yields. Declining issues easily outnumbered advancers, however, and both the S&P 500 and the Nasdaq closed lower -- the S&P by -0.11% and the Naz by -0.67%. Trading volume was subdued by the Yom Kippur holiday and general wariness preceding tomorrow's FOMC meeting.

The Boring Portfolio was fairly subdued today, too. Borders Group tacked another half-buck on to Friday's $1 1/8 gain, and Prime Medical displayed continued good health, as well. With the exception of Cisco, which was "unch" on the bid-side for the day, other Borefolio holdings lost a little ground -- sending the port's n.a.v. south to the tune of -0.18%.

There was no real news on any Boring stocks today, which provides me with an opportunity to offer you a quick run-through of the info that was covered in the Texas Industries conference call on Friday.

TXI fell $1 3/8 today on above-average volume of 53,000 shares. Presumably, some folks didn't find what they were looking for in the conference call. It's certainly the case that TXI didn't predict any Cisco-like 40 or 50 percent increase in EPS for the coming year. On the other hand, the company is on track for continued solid (as in concrete and steel) growth, especially as measured by cash flow and return on equity criteria.

You can get the full Foolish report on the TXI conference call (courtesy of MF Debit) by clicking into The Motley Fool's Earnings Central section. My semi-quick take follows.

TXI's 85%-owned Chaparral Steel continues to focus on products that play to its strengths, namely lightweight beam and special bar-quality steel. The lightweight "bantam" beam is used in low-rise construction and by manufactured home builders, and the activity in those markets continues to be just what Goldilocks would have liked: not an unsustainable boom, not too soft, but just right.

Operating profit for Chaparral was up 16% in the August 1996 quarter compared to the August 1995 quarter. Net income of $8.3 million, or $0.29/share was up 29% over last year's level. Chaparral repurchased about 350,000 shares of CSM stock during the summer.

Also over the summer, Chaparral upgraded its capacity for melting scrap steel, and later in the year these upgrades will increase capacity by approximately 100,000 tons/year. Scrap costs during the last few months have been flat and should remain that way through the next few months, according to the company. While order rates are strong, prices for structural steel have declined approximately 3-5% recently (as discussed here in recent reports), following price reductions by competitor Nucor.

The long-term financial objective at TXI is to earn an average return on shareholder equity in the high teens. They are meeting that objective and plan to continue to do so while they work on growing their core businesses through acquisitions and by capitalizing on innovations they create internally.

One such innovation is the patented CemStar cement process, announced a few weeks ago. That process incorporates slag, a byproduct of Chaparral's steel production, into the cement-making process and generates an additional 5%-15% capacity virtually "for free." TXI has begun licensing this process to other cement producers and expects to earn income from the licensing as well as from using the process in its own kilns.

TXI also continues to pursue its "sell everything we touch" strategy of seeking (and creating) markets for materials it generates in the process of running its main aggregates and cement operations. For example, sand and dirt that used to be regarded as having little marketable value are now being sold to golf courses and baseball parks, thereby contributing to earnings.

Supply and demand for cement in Texas and Louisiana remains in balance, and prices have continued to move upwards over the last several years. Sales in Q1:97 were hampered by unusually wet weather. In spite of that, net sales for the quarter for the cement, aggregate and concrete (CAC) segment were up about 3% over the year-ago quarter. The company should be able to make up some of the weather-related lost business but probably not all of it in the current quarter.

Consolidated net income for the quarter was up 16%, to almost $20 million. EPS of $1.74 represented a 13.7% gain over the year-ago quarter. There's a $0.10/share quarterly dividend on top of that.

For FY97, capital spending is expected to be in the range of $100 million, up from $80 million last year. This presumes some success in finding acquisitions on the CAC side that will meet requirement that acquisitions enhance earnings from the outset. As of the end of the quarter, TXI's debt-to-capitalization ratio is 26%.

Despite the weather in Q1, the company says is off to a good start for the year and remains comfortable with projections of $7.50/share earnings for FY97 (ending May '97). That would represent only single-digit EPS gains for the year, but it would still support a share price in the low-to-mid $70s, in my opinion (and in the view of the S&P analyst and Value Line).

TODAY'S NUMBERS

BGP + 1/2 ...CSL - 3/8 ...CSCO ---...GNT - 1/8 ...OXHP - 7/8 ...
PMSI + 1/4 ...SHAW - 1/8 ...SPY - 1/64...TXI -1 3/8 ...

*Scroll down or expand screen for full portfolio accounting

                   Day   Month    Year  History
        BORING   -0.18%   5.82%  14.18%  14.18%
        S&P 500  -0.08%   5.29%  10.43%  10.43%
        NASDAQ   -0.67%   6.13%  16.38%  16.38%


    Rec'd  #   Security     In At       Now    Change

  4/12/96 100 The Shaw Gr    18.84     31.50    67.18%
  2/28/96 200 Borders Gro    22.51     37.25    65.46%
   3/8/96 400 Prime Medic    10.07     14.00    39.04%
   2/2/96 200 Green Tree     30.39     37.25    22.58%
  6/26/96 100 Cisco Syste    53.90     60.63    12.48%
  1/29/96 100 Texas Indus    54.50     60.50    11.01%
  7/23/96 100 S&P Deposit    64.15     68.63     6.98%
  8/13/96 100 Carlisle Co    52.65     54.13     2.80%
  5/24/96 100 Oxford Heal    48.02     46.25    -3.70%

    Rec'd  #   Security      Cost     Value    Change

  2/28/96 200 Borders Gro  4502.49   7450.00  $2947.51
   3/8/96 400 Prime Medic  4027.49   5600.00  $1572.51
   2/2/96 200 Green Tree   6077.49   7450.00  $1372.51
  4/12/96 100 The Shaw Gr  1884.16   3150.00  $1265.84
  6/26/96 100 Cisco Syste  5389.99   6062.50   $672.51
  1/29/96 100 Texas Indus  5449.99   6050.00   $600.01
  7/23/96 100 S&P Deposit  6414.99   6862.50   $447.51
  8/13/96 100 Carlisle Co  5264.99   5412.50   $147.51
  5/24/96 100 Oxford Heal  4802.49   4625.00  -$177.49

                             CASH   $4428.44
                            TOTAL  $57090.94