This is a short update of my analysis posted on June 19, 2008.
With Benchmark (NYSE:BHE) trading down 22% intraday on July 24th, the Q2 earnings report qualifies as a “blowup”.
Just as in the last quarter, the quality of earnings was weak. Revenues down, plus gross margins down produced negative operating leverage. Non operating items cushioned the eps, otherwise the 19% reported decline would have been even worse. Specifically, the combination of a lower tax rate and lower shares outstanding helped eps by 3 cents, while the absence of last year’s restructuring charge added another 2 cents.
Earnings missed the Street number by 3 cents or 8%, while the top line was short of expectations by 6%. However the stock is trading down more on the really weak guidance for next quarter. The Street was at $0.38 and management says look for $0.32 to 0.37. More unsettling was the big reset on revenues. Street was at $750mm in a range of $735 to $785mm, while management guided to $650 – 690mm. I was not on the conference call and therefore did not pick up the color on these revisions, but if you are tempted to buy the stock, read the transcript first.
As is often the case, being statistically cheap is no safety net if fundamentals are slipping, which appears to be the case here. And the stock had run up in front of the quarter, making the news more painful.
In my last review on BHE, I concluded the stock would be more interesting in a range of $14 to 15. It was $17.30 at the time. So today we have the target price range, but the facts have changed for the worse. Thus, I still have no interest in purchasing BHE. I would put it in a monitor status for late ’08. At that time, the company should be closer to ramping up revenues on new program wins, plus there may be more activity from the existing customer base, which presumably is seeing economic impact at this time.