Ruby Tuesday (RT), the restaurant chain, offers the example of a company whose depreciation charges are falling as capital spending declines. Depreciation and amortization totaled $63.8 million in the fiscal year ended last June, down from about $75 million in the prior fiscal year.
Ruby Tuesday is expected to earn 79 cents a share in the current fiscal year. Olstein and Eric Heyman, Olstein Capital's director of research, calculate that depreciation and amortization will exceed capital spending by about 50 cents a share, which they add back to the consensus estimate of reported profits, yielding a cash-flow estimate of $1.29 a share. The discrepancy between reported earnings and cash earnings makes the stock's valuation, at 13.4 times this year's earnings estimate, more attractive in Olstein's view.
Interesting post. I own a few shares, and my main concern is the debt load. I really am not too concerned with misses of eps estimates, but it looked like they took on more debt buying back some restaurants from franchises last qtr. It's the "what if interests rates skyrocket" scenario that scares me. Remember it was the debt issue that drove this below $2 per share. So, I often wonder how quickly they can payoff debt. Your depreciation point helps shed some light. BTW, I think CBRL is a similar stock given their debt load.
Their debt is managable. They were even talking about buying back stock....
Our balance sheet is in great shape and we continue to focus on enhancing our cash flow through the low-risk investments that offer opportunities for high returns noted above; possibly repaying some of our expensive third-party debt; and returning any excess cash to our shareholders, primarily through an opportunistic share repurchase program.”