Black Box Q2 '97
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Black Box Q2 '97
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Black Box Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BBOX)") else Response.Write("(NASDAQ: BBOX)") end if %> BACKGROUND Black Box Corporation is a direct marketer of computer communications equipment supporting both LANs and WANs. The company also private labels communications and networking products that they sell through their catalogs. FINANCIAL RESULTS Black Box Corporation reported record Q2 and 6-month revenue and net income. Revenue was up 21% for the quarter and 20% for the half. Net income was up 37% for the quarter and 35% for the half. EPS was up 31% for both the quarter and the half. For the quarter, the company reported earnings per share of $0.34, a penny above analyst consensus estimates. This was the 19th consecutive quarter that their revenues and income were up double digits. They are particularly pleased with the worldwide strength of their results. Before goodwill and interest, earnings per share were a strong $0.43 for the quarter and $0.82 for the half.
Taking a look at the balance sheet, their accounts receivable were at 54 days outstanding, relatively steady with 53 days in Q1. Inventory turns were 6 times, equal to Q1. Capital expenditures were $500,000 for the quarter and $1 million for the half. Free cash flow was $7.4 million for the quarter and they are now up to $10.4 million for the half. With this free cash flow they reduced their debt a like amount ($10.4 million) since the beginning of the year and their debt now is below $40 million.
OPERATIONAL UPDATE
Q2 and the first 6 months of the year established new Black Box records. Driving this performance was the award-winning catalog and associated marketing materials, new products, a dedicated team of global professionals who are focused on the successful implementation of their profitable growth strategy and business model.
The North American business for the first half and Q2 experienced growth of 10%, consistent with the model of high single-digit/low double-digit growth. Their new products, award-winning marketing materials, and their account penetration strategy are the primary catalysts for the increase in the business segment.
The international business continued to demonstrate growth with revenues up 39% for the quarter. This brings international growth for the first half up 35%. International, through the first half of 1997, now accounts for 43% of total revenues. This compares favorably to the 39% for the first half of last fiscal year.
The momentum in their top subsidiaries continued with a strong Q2. Through the first half of the fiscal year, Japan is up 61%, the UK is up 38%, and France is up 22%. All of their international subsidiaries are demonstrating double-digit revenue growth, all driven by the successful implementation of their profitable growth strategy.
On the new subsidiary front, Brazil continues to flourish, having generated significant revenue growth by surpassing the total revenue production of FY 1996 already in the first half of FY 1997. That is $3.5 million generated in Brazil in the first half compared to $3 million for the total year in FY 1996. The operation continues to be profitable and they expect a very solid year in Brazil.
Mexico continues to be somewhat slower to mature. They completed the restaffing of their management team and expect to see improved results. They anticipate break-even by year end.
In the product arena, through the first half of the fiscal year they continue to experience solid growth. Here are a few examples. Their cable and connector business is up 40%. Testers and power protection are up 26%. Switches are up 24%. LAN products are up 19%. Their modem and MUX business is up 8%. All of those growth rates are for the first 6 months of this fiscal year.
Through the first half they have introduced 515 new products and revenues from new products (products introduced over the last 6 quarters) totalled $15.9 million in the last 6 months.
Their dollars per day production for the first half was $872,000, up 21% over the prior year's first half production of $722,000 per day. Average order size for the first half was $605, up from last year's first half average size of $594.
ANSWERS TO QUESTIONS FROM ANALYSTS
The company put out, between catalogs and other direct marketing pieces, about 2.6 million pieces in the quarter consisting of 1.8 million catalogs and 800,000 ancillary direct marketing pieces like their VIPreviews. In the US business, they added about 13,000 new customers in the quarter so they continue to increase their database. For the six month period, the number of catalogs mailed has gone down compared to the same period last year because they are improving the quality of the database and focusing it better to improve the performance of the catalog mailings.
As far as the international revenues go, they just had a very strong performance. They aren't really doing anything differently. It is a continuation of the success of the things they have done in recent times, the strength of the new catalog, and also new products.
Relative to the restaffing of the Mexico operation, the general manager was let go and they have added a new marketing manager and a new operations manager. They are confident that with that change in management talent and refocusing of the staff, that they are going to begin to realize their objectives much better than they have in the past. The new people were both brought in from the outside and are both Mexican nationals.
They continue to evaluate ongoing expansion. Right now they anticipate no new startups for the balance of the fiscal year and they continue to make investments in locations that show promise. There is great momentum building in Japan and Brazil as well as the UK and France. The bulk of their focus for the balance of this fiscal year will be directed at those locations.
Fundamentally the growth in the switch area is being driven by their keyboard video switches which allow people to control multiple screens from a single location. In the LAN arena the growth is coming from a variety of areas -- high speed area, Ethernet and Token Ring, and routers. Introducing new products is an ongoing activity and based on the demand from the customer base and the availability of product from their suppliers, they will introduce new products as they become available and in the market.
Gross margins were down slightly, but still well within their model -- 53-54% -- in any given quarter that will fluctuate 0.5%. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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