When I was at Financial World Magazine, we would do a list of the ten worst managed companies in America. The cycle was about once a year. To make the list, a company had to do a lot wrong compared to the rest of the stock market and its peer group. The financial results would have to be very poor, and companies in industries that were down across the board were usually not included. For this tech list, a number of financial sources were consulted along with research from Wall Street and sources like ValueLine, Morningstar, Investor's Business Daily and Yahoo!Finance.
Mercury Computer (NASD:MRCY) is in a bunch of businesses, especially broad for a company that does $45 million in revenue a quarter. The company provides high-performance embedded processor and I/O boards. They have a custom system design and engineering service business. Mercury has an interconnect architecture for the network, embedded and storage markets. The company also says it develops software for signal and image processing, visualization, analyzing and reconstructing images.
The industries that Mercury targets are equally broad: the defense industry, aerospace, education and research, electronics manufacturing, energy, and life sciences. Maybe it is just too much for investors to absorb, but the results are not working out well.
Mercury is making a habit of guiding down. On April 4, the company revised down estimates for its fiscal Q3 (3/31/06). Revenue was slated for $55 to $58 million, and that was dropped to a range of $43 to $44 million. On January 26, the company cut guidance for the full year 2006. The same day, that company announced its fiscal Q2 revenue (12/21/05). On February 9, Mercury revised those results, saying "subsequent to the initial earnings announcement on January 26, 2006, the Company's investigation of a discrete field warranty obligation resulted in the Company increasing its product warranty accrual for the second quarter". You sort of wonder why they didn't catch that before.
The company did over $71.5 million in the 6/30/05 quarter. That dropped to $66.9 million in the 9/30/05 quarter and then to $62.5 million in the 12/31/05 period. As one would expect, operating income dried up going from almost $13.9 million in the 6/30 period to $231,000 for the 12/31 Q. Obviously, a drop to $44 million for the quarter that just ended would continue a fairly ugly trend. Some of this may be due to the fact that the company's defense group was 68% of revenue in 2004 and only 59% in 2005. Maybe investors wonder what that number will be in 2006.
Mercury has hardly rewarded investors. The stock traded nicely above $30 during February 2005. You can pick it up for less than $18 now. Let's hope it doesn't get any worse.
MRCY 1-yr Chart
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited website in the world, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. McIntyre can be reached at firstname.lastname@example.org.