Headset maker Plantronics (NYSE:PLT) has a long history, which it is quick to point out in its ads. The ads typically feature an astronaut, signifying Plantronic’s exalted status as the headset through which Neil Armstrong relayed the first words spoken from the moon. Unfortunately, those very ads were a major contributor to today’s earnings miss (see also the full PLT conference call transcript).
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.