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Krispy Kreme Doughnuts, Inc. Message Board

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  • glsierra glsierra Mar 22, 2012 10:26 AM Flag

    2013 Earnings Forecast..Poor or what?

    Management needs to put out a better explanation of what the deferred tax issue is and how it affects the balance sheet / etc. I think I get what they're talking about but they have to realize that 1/2 of their shareholders are RETAIL investors while the other 1/2 are "knowledgable" insiders and institutional investors.

    I think the plummet is the result of A) the Stephens downgrade and B) poor explanation of the deferred tax issue. Remember, this company was hit with MAJOR accounting scandals just a few years ago. The way they explained it does nothing but revive the fear that the old accounting tricks are back -- perception is reality, so doesnt matter if trickery or legit accounting moves.

    Because I think the $ fall is more about the deferred tax issue, I am inclined to pick up more shares on the 'irrational selloff'. Keep in mind, the after hours trading spiked the price, the next day it started the free fall. Likely because people got past the headline good news and starting getting Post-Traumatic Stress Disorder (PTSD) over the accounting confusion.

    Here's how I understand the deferred tax thing that KKD is TRYING to explain. I could be wrong, partially correct, or completely accurate so take it at face value.

    The company experienced an avalanche of losses few years back. Losses are allowed to be carried forward by corporations to offset future profits from a TAX perspective. Those losses got sooooo large that management (previous or current, dont know) said we'll never see the light of day enough to ever capture those deferred tax benefits so we're taking them off our books somehow to clean up the balance sheet. Fast forward a few years of Morgan's leadership and the company is now turning around, profitable. They remembered that they had those big carry-foward losses from before offbook and decided to bring them back so that their future profits can be essentially 'tax sheltered' thanks to the carry forward losses. Thats my take. If someone has better/more correct view, feel free to chime in.

    So, in short, I believe (emphasis believe) that the deferred tax issue is a net positive for the company because it lowers their tax obligations for the short/mid time horizon while having zero impact on their true financial performance. HOWEVER, because of its accounting scandal history, it's freaking investors out. Thus, the plummet (I contend) is unjustified to this degree.

    My 2 cents.

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