The market has not yet headed into the heart of earnings season, but many companies reported quarterly results last week. Below, I've highlighted three key earnings reports of interest to value investors:
Frisch's Restaurants (FRS): The Ohio-based restaurant operator -- it owns and licenses Frisch's Big Boy concepts, while operating franchises of Golden Corral buffets -- reported strong fiscal second quarter earnings on Tuesday. The stock jumped 2.4% after the pre-market release, and finished the week up 7.4%, as the run continued post-earnings.
Overall, revenue was flat, though up 4% when excluding the closure of six Golden Corral restaurants in August (for which the company took an 81 cent-per-share charge in the first quarter). Earnings rose, largely due to tax benefits, as higher food costs offset higher same-store sales in the Golden Corral segment.
FRS trades at just 12x earnings, and well below its tangible book value of $25.09 per share. This, despite the fact that the company has been profitable every year since going public in 1960. At Friday's close of $21/share, FRS also offers a dividend yield of 3.05%; that dividend has been paid, without interruption, for 103 consecutive quarters.
The historical success of the company should overcome fears of Frisch's exposure to a relatively weak economy (its operations are centered in the Rust Belt, as all of the company's properties are in Ohio, Indiana, western Pennsylvania, and Kentucky). With the safe, established 3% yield and a stock price well below tangible book value, the stock offers a solid downside cushion. The recent breakout from a trading range between $18.50 and $20/share may lead investors to wait for a pullback; but the company's 50-year history of profitability and income potential still make the company worth a look at current levels.
Synnex Corporation (SNX): The IT reseller jumped 8% on Wednesday after reporting excellent fourth quarter earnings on Tuesday after the close. Fiscal year earnings were up 25% year-over-year, margins grew 15 basis points, and the company guided for another quarter of double-digit bottom-line growth in the first quarter.
The margin improvement was important for Synnex, as the razor-thin profits enjoyed in the business (operating margin is still just 2.46%) magnify the effects of cost-cutting. Beyond the recent good news, SNX offers a solid balance sheet, with debt-to-equity of just 0.33, and still trades at a modest premium to book value of about 1.1x. Trailing P/E at the midpoint of the company's fiscal first quarter guidance still sits at just 8.2x.
As noted, the small margins in the business -- and the stiff competition from Avnet (AVT), Computer Sciences (CSC), Arrow Electronics (ARW), Tech Data (TECD), and others -- lead to the lower valuations. But free cash flow was $90 million for the first nine months (fourth quarter results have not yet been filed with the SEC), and averaged about 10% of market cap annually over the past three years. (Working capital adjustments led to strongly positive cash flow in 2009, with a reversion in 2010.) Synnex is clearly a well-run, well-functioning company that still trades at a low premium to its assets and its earnings. Given the strength of recent earnings, investors should be wondering why.
VOXX Electronics (VOXX): The electronics manufacturer gapped up some 20% on Tuesday, as fiscal third quarter earnings after the close on Monday showed the company's success in integrating its 2011 acquisition of Klipsich. Revenue jumped 27%, margins jumped 770 basis points, and operating income more than tripled year-over-year. In addition, the company guided for lower sales -- but higher EBITDA -- in the earnings conference call.
Despite the gap up, the stock may still have some room to run. EBITDA for the fiscal year was guided at $44 million, and free cash flow for the first nine months was $25 million. Both figures compare favorably with the company's market capitalization of $255 million at Friday's close of $11.06. The Klipsich lines offers higher-end -- and higher-margin -- products, many of which are now designed to be compatible with devices from Apple (AAPL).
New products for 2012 include a GPS pet tracker called Tagg, an in-board vehicle diagnostic device called the Car Connection, and rear headrest entertainment systems for vehicles, which could support further top- and bottom-line growth.
VOXX management has shown the ability to innovate, to manage shareholder capital, and to successfully target and integrate a major acquisition (the stock is up 50% in the 11-plus months since the Klipsich purchase). And yet, the stock trades at 12x trailing earnings, 1.15x tangible book value, and just two-thirds of its book value. Monday's earnings report may have awakened the market to the stock's potential. But its strong product portfolio, exposure to market leaders such as Apple and Sirius XM (SIRI), and excellent cash generation mean that VOXX may have more room to run.