Friday Losers: Hansen Stayed at the Dance Too Long
Throughout much of the last decade, Hansen Natural (Nasdaq: HANS) dominated the lists of potential buyout candidates. The beverage maker was seeing tremendous demand for its various juices and sodas, especially its Monster energy drink, right at a time when the largest beverage firms such as Coca-Cola (NYSE: KO) and Pepsi (NYSE: PEP) were snapping up hot brands to bolster their own sales. As a result, Hansen generally garnered massive valuations under the notion that the big boys would pay a big premium for the company.
#-ad_banner-#The rumor mill cooled in late 2007, when the potential buyers made it clear that they weren’t looking to do a deal for Hansen. Shares eventually fell sharply enough to move valuations back in line with peers, but they staged a nice rebound in recent quarters. But Hansen released first quarter earnings Thursday night that should put the buyout rumors to rest once and for all. Sales are no longer growing, thanks in part to massive competition, along with a rapidly maturing environment for energy drinks. First quarter sales fell -3% while per share profits of $0.35 trailed the consensus forecast by -24%. That has pushed the stock down -15% in Friday trading.
Management blamed the shortfall on a decision by customers to make large purchases in the prior quarter — an unusual explanation clearly not anticipated by the analyst community. However, in the company’s conference call, it became evident that the Monster energy drinks are losing market share to rival Red Bull. Look for analysts to aggressively ratchet down their estimates for the next three quarters. At this point, shares are dead money, for at least the next three months, until management can show that market share for its Monster drink has stabilized.
|Company Name (Ticker)||Intra-Day Price||Market Cap||52-Week High||52-Week Low||2010*||2011*|
|Hansen Natural (Nasdaq: HANS)||$35.71||$3.2B||$44.99||$24.01||14.3||12.7|
|Trico Marine (Nasdaq: TRMA)||$1.61||$32M||$9.47||$1.51||Negative||Negative|
|Echelon (Nasdaq: ELON)||$8.11||$335M||$15.38||$6.85||Negative||Negative|
|EnerNOC (Nasdaq: ENOC)||$27.90||$691M||$37.00||$17.65||90.0||30.7|
|*Based on consenus estimates prior to recent earnings release|
Technology firms tend to carry large cash balances and no debt. These firms live in a boom-and-bust world, and cash means survival in the bad times. Strangely, many small companies that service the energy exploration market never learned that lesson. They often carry very high debt loads, even though the industry enters a periodic funk every few years.
Shares of Trico Marine (Nasdaq: TRMA) have shed more than a third of their value Friday morning after announcing a larger-than-expected loss, which has led to a cash crisis. Investors should keep an eye on the balance sheets of other heavily-leveraged firms in this industry such as Newpark Resources (NYSE: NR) and Parker Drilling (NYSE: PKD). At a minimum, these firms have to pay very high interest rates to secure debt, which can sharply impede profit growth. Parker Drilling, for example, recently had to pay more than 9% on a newly-issued bond. As Trico Marine’s plunge tells us, investors in boom-and-bust industries should stick with the best balance sheets.
The term “smart grid” has become quite popular, as the Obama administration has expressed plans to boost the efficiency and intelligence of our nation’s power transmission networks. But investors should take a cautious note from Thursday night’s earnings release from Echelon (Nasdaq: ELON). The company was an early entrant in the field of remote meter-reading and industrial process monitoring software. A key contract with Italy’s largest utility gave the impression that Echelon’s technology would see far wider deployment. It never happened and now, that major Italian contract is nearing completion.
EnerNOC (Nasdaq: ENOC) a younger rival just posted +53% year-over-year quarterly sales growth, while Echelon posted a slight drop in sales. The key difference: EnerNOC invested far more heavily to build a more robust suite of products that are saving utilities some real dough. While shares of Echelon are best avoided at this point, investors still have a chance to up on EnerNOC, as that firm produced strong results, but its shares have barely budged. (We profiled EnerNOC in this piece.)