Archive: Plantronics (PLT)

PLT: Plantronics Turnaround May Present Value

The following is a reprint of my December 20, 2007 RealMoney column

I have long complained that Plantronics’ (PLT) increasing exposure to consumers was nothing but trouble. If lower margins and higher advertising costs weren’t enough, the fact that the consumer part of the business was dragging down overall growth was the icing on the cake.

The company was cleaning up its act earlier this year, and the shares rallied as a result. But an earnings miss in October and a downgrade by JPMorgan (JPM - Annual Report) have robbed stockholders of the entire year’s worth of gains.

Once again, the main culprit is the consumer business – specifically the Audio Entertainment Group (AEG), which was formed through the company’s ill-advised purchase of Altec Lansing. Through the six months ended September 30, that segment’s sales were just $43 million – down from $63 million in the same period last year.

In addition to the AEG, the company continues to struggle with more intense competition in the mobile headset business. One reason for the JPMorgan downgrade was that channel checks indicate the company is losing share of Bluetooth headsets to Motorola (MOT - Annual Report) and Nokia (NOK).

Finally, inventories continue to be far too high for my comfort. They have more than doubled over the past couple of years compared to a cumulative sales increase of just 42%. It isn’t the situation one wants to have in a slowing economy, especially in the face of competitive pressure.

The Good News

There are still a few reasons for optimism, though. For one thing, the drop in AEG revenues means it now accounts for less than 12% of the total business. Even if things continue to deteriorate, the incremental impact will be less likely to weigh on the total company.

Furthermore, the company took action to try and prevent such deterioration. Last month they announced a plan to close and/or consolidate a number of facilities as part of a strategic initiative to lower costs. They are also trying to design fresher products that consumers may actually want to buy, but those aren’t expected until next Christmas.

One good thing that could come of the restructuring in the short term would be a disruption in manufacturing. Though this doesn’t sound good at first blush, it would give the company a chance to work down those inventories.

Not a Bad Value

Shares are trading at less than 17x the consensus estimate for the fiscal year ending in March, and just 14x the estimate for March 2009. Unfortunately, given the recent news it is likely both sets of estimates will come down over the next few weeks.

The 9.9% consensus analyst estimate for 5-year growth is less than the company’s sustainable growth rate based on ROE. This means if growth is less than expected the company should be able to compensate by raising the dividend or buying back shares.   On a price to book basis, I think the current multiple of 2.2x could increase. Combined with the growth potential, a valuation expansion could lead to double-digit gains for the stock.

Over the last 12 months Plantronics generated $79 million in free cash flow. If anything, I think this could improve if the company gets a grip on its inventory levels and production capacity. The current FCF/EV yield is fairly attractive at 6.3%, which provides a decent margin of safety while waiting for the growth to materialize.

Although I like the valuation and believe there is cause for optimism, the stock has whipsawed lately due to numerous analyst upgrades and downgrades. Investors willing to take a chance on it would want to pick their price carefully.

Writing puts may also be an effective strategy here. As I write this, the February 25’s are trading at $1.10, offering a potential 4.5% 1-month return on the money risked and an effective purchase price of $23.90 in the event of further market declines.

Topics: Communications Equipment, JPMorgan Chase (JPM), Motorola (MOT), Nokia (NOK), Plantronics (PLT) | No Comments

PLT: I Was Too Skittish About Plantronics to Take My Own Advice

Sometimes no matter how well you think you know a company, you just can’t seem to make a profit from them. At least not a significant one. For me, it seems, that stock might be Plantronics (PLT). I did well in the stock for my previous employer, then foolishly failed to take profits and ended up giving most of them back. As you might expect, that made me skittish. I have followed the stock on Stock Market Beat, and to recap my thoughts:

So you’d think that with things now playing out as I thought they should that I would keep the shares I got by exercising the call options in June. Nope. Too skittish. I covered the shares by selling call options to lock in some profit. The shares kept rising and were called away from me last weekend.

Today Plantronics announced first quarter fiscal 2008 net revenues of $206.5 million compared with $195.1 million in the first quarter of fiscal 2007. Revenues were within our guidance of $205 to $210 million. Plantronics’ GAAP diluted earnings per share increased 24% to $0.31 in the first quarter compared with $0.25 in the first quarter of fiscal 2007. Non-GAAP diluted earnings per share were $0.37 compared with $0.28 in the first quarter of fiscal 2007. Earnings per share exceeded previously provided GAAP guidance of $0.20 to $0.23 and non-GAAP guidance of $0.26 to $0.29. The difference between GAAP and non-GAAP earnings per share for the current period is the cost of equity-based compensation.

And I’m not seeing a penny of it.

Topics: Communications Equipment, Plantronics (PLT), Technology | No Comments

The Week Ahead – 21 July 2007

The Economic Calendar is quiet in the early part of this week but there are important reports at the end of the week. On Thursday is the Durable Goods report, for which the consensus estimates a 2.0% increase. On Friday is the Preliminary Estimate of 2Q GDP, which the consensus has pegged at 3.2%. That sounds a little high to me based on the economic data table I’ve been compiling.

EconomicData

Bad and Deteriorating Bad but Improving Good but Deteriorating Good and Improving
Existing Homes (June) Chicago Fed NAI (May) Consumer Confidence (June) Real Disposable Income
Employment (June) Durable Goods (June) Personal Spending (June) ISM Manufacturing (July)
New Home Sales (June) Construction Spending Retail sales (August 2007) ISM Services (June)
ATA Truck Tonnage (June) CPI (July 07) Leading Indicators (June)  
GDP (Q2 Advance) Trade deficit (July 07)    
PPI (July 07) Durable Goods (July)    
Industrial Production (July 07)      
Housing Starts (July 07)      
       
       

The Earnings Calendar is as busy as it can get. Some of the names I’ll be watching:

Monday

Tuesday

  • CH Robinson (CHRW - Annual Report) – estimates have been rising and now stand at $0.47, but Landstar (LSTR - Annual Report) disappointed.
  • CDW Corporation (CDWC) – stellar monthly sales reports have kept estimates rising. They now stand at $0.97.
  • EMC Corporation (EMC - Annual Report) – The big news is still the VMWare IPO, but it is also a decent look at enterprise tech spend.
  • Laboratory Corporation of America (LH) – The Mid Cap and Large Cap Watch List (Track at Marketocracy) member has been seeing positive earnings revisions and is now expected to earn $1.09 on $1.03 billion in revenue.
  • Lexmark (LXK) preannounced and will probably offer poor guidance.
  • Linear Technology (LLTC) – expected to earn $0.35 on $267 million in sales.
  • Norsk Hydro (NHY) – The Large Cap Watch List (Track at Marketocracy) member has no analyst coverage right now.
  • Plantronics (PLT) – my covered call position is now being cashed out so I’ve no skin in this one. But it is often volatile.
  • United Parcel Services (UPS) is a great read on the health of the economy. Expectations are $1.03 on $12.23 billion in revenue.

Wednesday

Thursday

Disclosure: William Trent has a long position in SMH.

Topics: Air Courier, Altera (ALTR), Basic Materials, CDW Corp (CDWC), CH Robinson Worldwide (CHRW), Colgate Palmolive (CL), Communications Equipment, Computer Hardware, Computer Peripherals, Computer Storage Devices, Conglomerates, Consumer Non-cyclical, Corning (GLW), Durable Goods, EMC Corp. (EMC), Economy, Electronic Instruments and Controls, Federated Investors (FII), Financials, Freeport McMoRan (FCX), GDP, Graco (GGG), Healthcare, Healthcare Facilities, Hexcel (HXL), Ingram Micro (IM), Investment Services, Iron and Steel, Laboratory Corp. of America (LH), Large Cap Watch List, Lexmark (LXK), Linear Technology (LLTC), MEMC Electronic Materials (WFR), Metals and Mining, Mid Cap Watch List, Miscellaneous Capital Goods, Miscellaneous Transportation, Norsk Hydro (NHY), Personal and Household Products, Plantronics (PLT), Retail (Catalog and Mail Order), Semiconductors, Services, Small Cap Watch List, Steel Dynamics (STLD), Stock Market, Technology, Texas Instruments (TXN), Transportation, United Parcel Service (UPS), Watch List, Xerox (XRX), Xilinx (XLNX) | 3 Comments

PLT: Plantronics Says Goodbye to Marketing Director

One year and thirteen days ago, I said:

You see, PLT spent $11 million in its 2006 fiscal year (which ended April 2) on these ads. Without them, the company would have had an additional $8 million in net income, which in turn translates to $0.17 per share, or nearly 10 per cent of the total EPS generated. For FY2007 – get this – the company plans to increase marketing spend to $19 million. This adds an additional $0.13 drag on EPS, for a total FY07 hit of $0.30.

All this spending for a business that is essentially a duopoly between PLT and GN Store Nord, which fell in sympathy on the Plantronics miss. Although share gains can be meaningful in a duopolistic business, our bet is that PLT would fare better by making good, stylish headsets for office users, who are more concerned with quality and fashion elements than with who wore what headset in outer space. Our advice, save the $19 million, and cut a little additional cost by firing the guy who convinced you the ads are a good idea. We investors would rather keep the extra $0.30 for ourselves, thank you.

Then in October the company addressed the advertising spend on the conference call and I decided not to fight the strong tape and bought some shares. Or more specifically I created a synthetic long position by selling May $20 puts and buying May $22.50 calls for net-zero cost.
Today Plantronics (PLT) issued the following statement in an 8K:

On May 10, 2007, Plantronics, Inc. (”Plantronics”) announced that Mark Breier, the Senior Vice President and Chief Marketing Officer of Plantronics, will be leaving Plantronics effective May 16, 2007.

With the guy who convinced them to spend the money gone, and a few days left before the options expire, hopefully I’ll get a little more juice out of them.

Topics: Plantronics (PLT), Stock Market | No Comments

GRMN: Garmin Moves on Small Surprise

Our earnings preview for Garmin (GRMN - Annual Report) said it “shouldn’t need a big surprise to move the stock from this level.” Today the company reported earnings:

First Quarter 2007 Financial highlights:

– Total revenue of $492 million, up 53% from $322 million in first quarter 2006

– Earnings per share increased 60% to $0.64 from $0.40 in first quarter 2006; excluding foreign exchange, EPS increased 37% to $0.59 from $0.43 in the same quarter in 2006.

These results compared to consensus expectations of $0.59 on $499 million in sales. So the stock did indeed move on a not-big surprise, albeit one in the opposite direction from which we implied. The company did not change its prior guidance, saying:

We remain optimistic about the future success of our business and our ability to serve customers and distributors around the world. We anticipate overall revenue to exceed $2.5 billion in 2007, and earnings per share to exceed $2.70 assuming an effective tax rate of approximately 13 percent. We anticipate automotive/mobile revenues to grow faster in 2007 than we earlier anticipated, and continue to expect declining operating margins due to product mix and a continued transition toward mass market levels. We intend to provide a formal update to our fiscal 2007 financial expectations during the Q2 2007 earnings conference call.

Unfortunately, analysts were already ahead of those expectations, calling for $2.81 in EPS on $2.54 billion in sales. Without a significant surprise in Q1 or a significant surprise forecast for Q2, the estimates are starting to look a bit out on a limb.

Add this data point to the ones provided by Royal Caribbean (RCL), Plantronics (PLT), Radio Shack (RSH) and Circuit City (CC) that consumer spending may be slowing.

Topics: Circuit City (CC), Garmin (GRMN), Plantronics (PLT), RCL, Radio Shack (RSH), Stock Market | No Comments

PLT: Plantronics Deeper in Consumer Hole

Plantronics (PLT) reported earnings:

Plantronics, Inc., (NYSE: PLT) today announced fourth quarter net revenues of $194.7 million compared with $206.7 million in the fourth quarter of fiscal 2006. Revenues were at the midpoint of previously provided guidance of $190 to $200 million. Plantronics’ GAAP diluted earnings per share were $0.21 for the fourth quarter compared with $0.43 in the fourth quarter of fiscal 2006. Non-GAAP diluted earnings per share were $0.28 and exceeded the range of guidance the Company provided on January 22, 2007 which was $0.22 to $0.27. The difference between GAAP and non-GAAP earnings per share is primarily the cost of equity-based compensation.

Analysts were targeting $0.25 on $196 million in sales. The company also guided for sales of $205-$210 million and GAAP EPS (c’mon Plantronics – enough with the non-GAAP now that options have been expensed for a full year) of $0.20-$0.23. The consensus was for $0.28 on $199 million, indicating that margins are now expected to be worse.

The company blames the shortfall on the former Altec Lansing subsidiary, which we have complained about repeatedly. In fact, the core headset business is improving dramatically.

Office wireless products were up 28% compared to the fourth quarter a year ago and 16% sequentially. After several quarters of relatively flat sequential results, growth resumed in Q3 and continued in Q4, bringing the
fiscal year growth in this important category to 36% compared to fiscal 2006.

Gross margin in Q4 FY07 was 45.1% compared with 43.1% in the year ago quarter. Among the factors driving gross margin higher from Q4 FY06 were the positive impact of cost reduction on our Bluetooth mobile and office wireless products, and our improved product portfolio in Bluetooth mobile.

Apart from the problems in the consumer line we actually liked the report. However, consumer is looking more and more like a quagmire, and we’re not sure how they are going to extricate themselves.

William Trent currently has a short position in put options related to Office Depot (ODP).

Topics: Plantronics (PLT), Stock Market | No Comments

The Week Ahead (29 April 2007)

The Economic Calendar has three potentially important events this week:

  • Personal Income and Outlays on Monday (consensus 0.6% income, 0.5% spending)
  • ISM Manufacturing on Tuesday (consensus 51)
  • The Employment Situation on Friday (consensus 100,000 jobs added, 4.5% unemployment)

Earnings season continues in full force.

Monday

Tuesday

  • Plantronics (PLT) – anyone’s guess, though our long position gives away our own guess

Wednesday

  • Cognizant (CTSH) – one of these days the growth will hit a wall, but probably not this day
  • Garmin (GRMN - Annual Report) – shouldn’t need a big surprise to move the stock from this level
  • Itron (ITRI) – risk to estimates in both directions due to Actaris acquisition
  • Sprint (S - Annual Report) – the worst may be over here
  • Symantec (SYMC) – Based on MFE and VDSL should have a big quarter

Thursday

  • Ansys (ANSS) – Dassault beat big, and we like Ansys better
  • QLogic (QLGC) – too risky for our tastes
  • Starbucks (SBUX) – probably no surprise, but risk probably to the downside when they are making this kind of move

Disclosure: Long PLT and ITRI

Disclosure: Author is long Starbucks (SBUX) at time of publication.

Topics: ANSYS (ANSS), Cognizant Technology Solutions (CTSH), Garmin (GRMN), Itron (ITRI), McAfee (MFE), Plantronics (PLT), QLogic (QLGC), Sprint Nextel (S), Starbucks (SBUX), Stock Market, Symantec (SYMC), Verizon (VZ) | 7 Comments

PLT: Plantronics Can’t Pull a Quick(silver) One On Investors

Unfortunately we didn’t reverse our bullish position when we noticed the odd Oracle/Plantronics lovefest.  It nailed Oracle’s (ORCL) miss, and we should have sold Plantronics (PLT) on superstition alone. Instead, we are left with the thin gruel of a partnership with Quicksilve (ZQK):

The new collection integrates Quicksilver’s outdoor sports apparel with Bluetooth-equipped mobile phones, iPods and MP3 players. The goal is to make the components wireless to make use in active settings, such as skiing, easier.

Earth to Plantronics (company management apparently accompanied their headset to the moon): any skier who needs Bluetooth clothing probably already bought a pair of Oakley (OO) Thumps. And no, investors were not so enamored with your breathlessly announced deal to ignore your earnings report. Revenues of $215.4 million beat the $210 consensus but were down from $222.5 million in the third quarter of fiscal 2006. Thanks again (sarcasm) for spending your cash flow on Altec Lansing. The company’s guidance also came in well below analyst expectations.
Given the cash flow disclosure provided, it looks like the company produced about $25 million in free cash flow during calendar 2006, meaning that its $900 million enterprise value gives it a rich valuation of more than 35x free cash flow, and the conference call discussion indicated little opportunity for significant improvement in the coming year.

Disclosure: Long PLT at time of publication.

Topics: Motorola (MOT), Oakley (OO), Oracle (ORCL), Plantronics (PLT), Quicksilver (ZQK), Stock Market | 1 Comment

Oracle (ORCL): Where There’s Smoke, There’s Fire?

Oracle (ORCL - Annual Report) is trading down after reporting numbers that met earnings estimates but were weak with regard to sales. On the conference call, Chief Financial Officer Safra Catz gave the following details:

New software license revenue came in at $1.2 billion, up about 14% year over year. We had expected to be at the high-end of our 15% to 20% new license range based on our strong pipeline. However, we ended the quarter a point below that range. Earnings came in right at the guidance number of $0.22. As we have looked at the new license results, we believe it basically came down to execution on a number of deals that did not close in the quarter.

This is particularly worrisome given that some analysts had said Oracle had set a low bar that should be easy to clear.

Cowen’s Peter Goldmacher this morning reiterated his Outperform rating on the stock. “Our broad based checks lead us to believe that business in 2Q was just OK, which seems to be consistent with the chatter,” he wrote in a research note. “We expect 2Q to be a repeat of 1Q in that consensus estimates are conservative enough that the company doesn’t need to do anything particularly heroic to get over the bar.”

The problem is, it looks like they may have tried some last-minute heroics yet still missed the mark. You may recall that a week ago we noticed Oracle had apparently joined a mutual admiration society with Plantronics (PLT). Specifically, we said:

Now, it’s quite likely that this was simply a way to share cost-free favors (talking each other up in a press release) as each business negotiated a standard supply contract. However, it is always something that should draw attention when two parties enter an agreement that may not be arms-length. It would be better to look at it and decide nothing is wrong than to overlook something that could potentially be a warning.

In the cases of Plantronics and Oracle, there were no specifics regarding the size of the deals or time frame over which they extend. Neither is a major (10%) customer of the other, so there is some limit as to how much the deal could help one or the other. Questions investors may want to pursue include:

  1. Were the agreements similar in size? Revenue recognized from barter agreement is of lower quality (less likely to recur) than cash revenue.
  2. Given that Oracle’s fiscal quarter ends in November, the arrangement could have allowed them to book last-minute revenue. If their revenue for the quarter misses or only slightly exceeds analyst estimates when they report next Monday, a good conference call questioner could ask how much this agreement contributed (particularly with respect to license revenue.)
  3. Given that Plantronics is much smaller, they could potentially benefit more from the deal than Oracle but they are potentially in a less favorable bargaining position. Their investors might want more information regarding the size of the agreement for that reason.

So, question 2 has now been answered (at least partially.) We know that Oracle needed some last-minute deal closings, and may have sweetened the deal with Plantronics to include standardizing on their headsets and the resultant back-patting. Unfortunately, we were unable to join the live call and ask how much the Plantronics deal contributed to the quarter, and none of the other callers took our suggestion.

We can also consider the revenue at least moderately on the weak side (per question one.)

We still think Oracle’s acquisition strategy is good for the company and the industry competitive structure. However, these signs of weakness suggest that the turnaround might not be going as smoothly as previously believed.

Topics: Oracle (ORCL), Plantronics (PLT), Stock Market | No Comments

Plantronics (PLT) and Oracle (ORCL) Scratch Each Other’s Backs

We’d venture to guess that not too many people follow both small-cap headset maker Plantronics (PLT) and large-cap enterprise software vendor Oracle (ORCL.) We do, which is probably the only reason we noticed this little gem. Both companies recently issued remarkably similar press releases, each extolling the other’s virtues.

Oracle Standardizes on Plantronics Wireless Headset Systems to Optimize VoIP Communications

“We evaluated numerous headset offerings to complement Oracle’s VoIP deployment, and the Plantronics Voyager 510-USB is clearly ahead of the pack for audio performance, ease of use and style and comfort,” said Mark Sunday, Senior Vice President and CIO, Oracle. “We are also very impressed with Voyager’s performance with Oracle Collaboration Suite. Now employees have a single wireless headset for all of their voice and data communications.”

Plantronics Standardizes Global Operations on Oracle(R) … – Yahoo! News (press release)

“We get a great deal of value and cost savings out of the Oracle system,” said Plantronics Vice President of Finance and Worldwide Corporate Controller Susan Fox. “The external auditors we work with have experience using the Oracle E-Business Suite and have developed proven methodologies for testing and verification. That expertise allows us to reap the benefits of economies of scale and avoid the process of educating auditors on the nuances of our system.”

Now, it’s quite likely that this was simply a way to share cost-free favors (talking each other up in a press release) as each business negotiated a standard supply contract. However, it is always something that should draw attention when two parties enter an agreement that may not be arms-length. It would be better to look at it and decide nothing is wrong than to overlook something that could potentially be a warning.

In Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, Second Edition (aff. link) Howard Schilit has this to say about such deals:

On October 5, 1999 Microstrategy (MSTR) announced in a press release that it had signed a deal with NCR Corporation…. Under the agreement, MSTR invested in an NCR partnership and NCR returned the favor and purchased MSTR’s products. We refer to that practice as a “boomerang.” (p. 44)

Later, Schilit elaborates:

A two-way transaction means that you both buy from and sell to the same party. Questions should be raised about the quality of the revenue recorded on such transactions….

If, as a condition of making a sale, the buyer receives something of value from the seller (in addition to the product) the amount of revenue recorded becomes suspect. This may involve a barter exchange, offering the customer stock or stock warrants, or investing in a partnership with the buyer. (p. 80).

In the cases of Plantronics and Oracle, there were no specifics regarding the size of the deals or time frame over which they extend. Neither is a major (10%) customer of the other, so there is some limit as to how much the deal could help one or the other. Questions investors may want to pursue include:

  1. Were the agreements similar in size? Revenue recognized from barter agreement is of lower quality (less likely to recur) than cash revenue.
  2. Given that Oracle’s fiscal quarter ends in November, the arrangement could have allowed them to book last-minute revenue. If their revenue for the quarter misses or only slightly exceeds analyst estimates when they report next Monday, a good conference call questioner could ask how much this agreement contributed (particularly with respect to license revenue.)
  3. Given that Plantronics is much smaller, they could potentially benefit more from the deal than Oracle but they are potentially in a less favorable bargaining position. Their investors might want more information regarding the size of the agreement for that reason.

Or, as we suggested earlier, it could all simply be PR fluffery. But even in that case it is best if investors know all the details.
Disclosure: Author is long Plantronics (PLT) call options and short Plantronics put options.

Topics: Forensic Accounting, Fundies, Microstrategy (MSTR), NCR (NCR), Oracle (ORCL), Plantronics (PLT), Stock Market | 3 Comments