In reading this board, I am constantly amazed at the disconnect between the shorts and those long DMND.
Here is the math of the shorts.
Adjusted earnings power of the company has been restated down by $40 million because they were delaying payments. You then have to add roughly $10 million in extra interest expense ($%11M x 2%) because they are violating the debt covenant. The new wrinkle this morning: DMND may have to pony up another $12 million in expense (250 million lbs/yr x .05/lb) because it seems they have been paying walnut walnut growers less than fair value by $.10/lb, even with the momentum payments:
PUtting it together:
Operating income $ 69.1M
Walnut expense shift -40.0M
Walnut underpayments -12.5M
New interest expense -10.2M
Adjusted pretax income 6.4M
Tax rate @ 27% 1.7M
Net income $4.7M
2011 EPS @ 22.3M $.21/share
At a 20x multiple, the stock would trade at $4.20 -- 80% below where it is today.
If you don't want to do math, that's OK, but I challenge ANYONE on this board to come up with math that supports the current $23/share valuation.
I'll respond to just the tax number, since I know tax - your understanding of the recalculation is incorrect.
If you have to restate your financials because you overstated income previously, it works like this:
Your original reports state $200 in income. You pay $70 tax.
Your revised report state $100 in income instead, you don't now pay an additional $35 in tax. In fact, you get $35 back form the gov't for overpaying in the first place.
So your numbers should show a big refund based on your recalculated income for the period.
First of all, do you buy/short on history? The 'momentum' payments look like future contracts to me....problem is....they were hedging a commodity that goes into inventory. Also, there is something called a quantity discount. Of course, the growers complained. Think about how much they'll complain if they don't sell their crop.
This is headed up, but probably trades in a range until earnings release.
Good reply and the the other thing on the history is that 2012 fy got better by 60 but this should not change the future estimates of eps
so 3.50 bucks at a growth rate of 14 yield a 40 to 50 pps.
shorts have thier own math i guess
also they don't understand that pps is a calc of future earnings discounted back not the past
the problems will go away.
Depends where they put the additional payment. If 40 million is added into the 4th Q operating expenses then the 4 Q EPS will drop from +.37 to -.63 which will bring the annual EPS to $1.21.
page 52. http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?docKey=136-000119312511249300-6NHC4G2VLJ42MMHL1VS8EQ1G8R&docFormat=HTM&formType=10-K
At 20x earnings the stock is now priced fairly based on last years probable readjustment.
If the 2 Q's following the readjusted 2011 10K figures indicate that even without Pringles DMND is on track to repeat or better last years EPS of 2.28 then by the end of July the pps should be around $44 at 20x earnings and $34 at 15x earnings.
They probably won't but rather than re shopping Pringles P&G could just bide their time and restructure the deal based on the 3rd or 4th Q weighted moving average stock price divided into $1.5 billion. It was $51+ in the original deal which resulted in 29+ million shares being set as the trade number. If Pringles indicates they might still be interested the pps could easily return to that level.
There is no $12mm expense for underpaying the walnut growers. They were paid according to their contracts. They are just complaining that the contracts were priced under market rates, which is why some of the smaller farmers are hoping to find higher paying companies to switch to when their contracts expire.
Second, any one time expenses into 2011 will not repeat in 2012, so the stock price will properly reflect the expected 2012 earnings once new guidance is issued by the company.