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DEXO - Q1 Earning Preview


DEXO will report its Q1, 2012 earnings tomorrow (04/26/2012) before market open. I would like to present my earning preview in the following based on company's own guidance..

Before presenting my Q1 earning estimates, I would like to look back how well my Q4, 2011 earning estimates was.

I gave my Q4 2011 earning preview one week before company's earning release. The following table showed my estimates and the actual result:

From the table, it can be seen that I was quite accurate on my estimates about company's D&A and interest expenses. The revenue was at the low end of my estimate. But production&distribution cost and S&A expenses made big improvements. Compared with Q3, 2011 results, we can see that cost reduced 130 base points from 20.00% of revenue to 18.71% of revenue and S&A reduced from 40.27% of revenue to 38.97% of revenue.

Net profit before income tax was $23.50 million, which is only $4.62 million shy of Q3, 2011 result even revenue was down $19.37 million and it was at the high end of our estimate

Net profit after income tax provision was $5.54 million or $0.11/share and it is a surprise for me as the income tax provision took 76% out of its net profit.

Now the Q1 earning preview:

During its Q4 2011 earning conference call, the company gave the following guidance for 2012:

  • Revenue : $1,225 - $1,300 million
  • Additional cost cut: $120 million
  • Free cash flow: $300 - $375 million
  • adjusted EBITDA: $500 - $575 million
  • Q1, 2012 revenue slightly lower than Q4 2011

At the end of 2011, the company had $257.90 million cash with $2,510.0 million debt. Net asset is negative of -$9.0 million

Now my projected income statement for Q1, 2012:

Revenue: the company indicated that revenue will be slightly lower than Q4, 2011. Therefore we give $350 million as our estimate.

Cost maintains as the same margin (18.70%).

I project a further reduction from their S&A expenses: from 38.97% to 37.1% with higher D&A cost ($73 million) and the same amount of interest payment ($55 million).

Net profit before income tax will be $26.53 million, about 10% higher than Q4, 2011 result.

I have no idea how much the company will pay for the income tax and will leave it blank here.

I project 50.25 million shares by the end of Q1, 2012.

Therefore net profit will be $0.52/share for Q1, 2012 before income tax provision and one-time gain.

During the first quarter, 2012, company bought back $142 million of its debt using $70 million cash. This will give $72 million or $1.44/share one time gain .

Therefore the company may report $1.96 EPS before income tax provision.

Book Value: $140 - $9 million + $20 million (Q1 net profit) = $151 million = $3.00/share.

Stock has lost about 50% of its value since its recent high of $2.48. At $1.25, I believe that it is undervalued and will be a good entry price for long term investors.

Disclosure: I am long DEXO.