JBX moves appear to be related to a hand full of
institutional investors unloading in anticipation of earnings
Ironically, this selling was triggered on
the same day as big MCD anaylsts meeting. Any insight
to what was said at that meeting would be
In looking over the trading range of JBX past
several weeks, JBX has been thinly traded, which has
caused the stock to move up and down on very limited
volumne. That is to say no significant market for or
against the stock.
When institutional parties
sought to shed hundreds of thousands of shares, they
forced the price considerably lower to the point of
generating buyers. In the alternative, if and when the
decide to move back in it will likely move it higher
I am hopeful this flight on the eve of earnings is
based on erroneous analysis of MCD analysts comment and
not based on leaked JBX data.
Should JBX meet
or exceed the concensus, stock should be up
Wendy's is a good point of reference for Monday's earning
release. If JBX receives a Wendy's multiple on estimated
earnings stock should move sharply higher.
however, JBX misses the mark, this market has punsihed
I believe JBX would have warned if they were going
to miss the mark.
This week appears to have
been a great buying opportunity.
I have a good
feeling Tuesday trading will be brisk and positive. I'm
looking to sell on Wednesday.
To be honest, I really don't have much of a clue
why JBX is having such a significant correction. As
you know, this just happens once in a while with JBX.
A combination of relatively low average trading
volume and a high institutional percentage of
outstanding stock holdings can cause the unusual swings - up
and down. Unfortunately, the most recent swing was
My only other guess is that there may be worries
about a negative earnings release this Monday. I'm
thinking this only because McDonald's shareholders seemed
very optimistic with McD's comments at their recent
conference. It's possible their comments scared off some JBX
shareholders. I really wish I had some more detail on that
Based on JBX IR's comments, it sounds like a
dissapointing announcement on Monday is pretty unlikely.
Thanks for the clarification. Do you have an
opinion on whether some of this downturn in JBX might be
attributable to outflows due to sector rotation? If you look
at the charts of most other restaurant stocks,
you'll see a similar correction going on in their stocks
over the past few months, with the exception of
>>Also, the 2Q99 provided an unexpected
$11M in net income from an unusual
FYI, that unusual item was a non-cash recording. They
simply had an over accrual and changed their estimmates
for the future. They were accruing expenses that they
anticipated paying. Although it is nice that they never had
to pay those expenses, they also never actually
received $11M cash.
Looks like we just have a
difference in opinion regarding the share buyback program.
Granted, JBX appears to be a steal right now.
You should verify with the Treasury Department if
you're interested in current cash flow options, as my
last conversation with Hal Sachs on this subject was a
while back. But here are my notes on a conversation I
had with him when the 2Q99 results came
>>When we spoke last year after the refinancing (using
the lawsuit settlement proceeds), he did not foresee
any further debt paydowns in the near future. (FM has
been using cash flow to fund their restaurant
expansion program) However, no one expected sales to be
this strong, and now they will likely pay down $15 to
$20 million of their bank debt in FY99. There are no
plans to increase the number of new stores opening
under their expansion program, so any excess cash will
go to pay down debt. They are highly leveraged and
will remain so for the foreseeable future, but their
debt to equity ratio has improved dramatically over
last year, and will continue to improve (at a slower
pace) this year, especially if sales continue to exceed
(full post is message #762)
My point is I'd rather see them use that $20M to buy
up some shares here around $20, which I think is a
JBX has been using cash flow
to fund its expansion program at a moderate pace
that doesn't force them to take on more long term
debt. Also, the 2Q99 provided an unexpected $11M in net
income from an unusual item:
"During the second
quarter, the company reduced accrued liabilities and
restaurant operating costs by approximately $18 million,
primarily due to a change in estimates resulting from
improvements to its loss prevention and risk management
programs, which have been more successful than anticipated.
This unusual item increased net earnings by
approximately $11 million, net of taxes, resulting in net
earnings for the quarter of $25 million, or 64 cents per
diluted share." (from the 2Q99 quarterly
As always, do your own research,
A company with a large revolving credit facility
doesn't want a large cash balance. JBX probably has
around $90 million on their credit facility debt. If
they have any extra cash, they want to pay down debt
on the facility rather than have it earn 2% in the
XTGO, with $90 million in debt
on the bank facility, there is plenty of room to pay
down debt. Personally, I don't think a buyback program
is necessary, at this time. This stock will bounce
back quick, maybe by next week.
The profile section of Yahoo! only shows $5.2M in
cash. Not familiar with fast food company balance sheet
analysis, but the current and short term debt ratios don't
look that onerous. But $5M cash seems light. Are the
cash flows strong enough that this is plenty for an
enterprise of this size?
PS- sorry to have kept the
anachronistic "crispy" in my #1 menu choice...the slavic
masseuse just jogged my memory to the name change. ~Geo.
The largest portion of JBX's long term debt
($124.8M) is fixed interest (8.4%) bonds that are not due
until 2008. Even if JBX wanted to pay some of this off,
they can't, since they're not redeemable until 2003 at
the earliest. I'm not sure about the rest of the debt
(long term lease obligations and revolving bank
credit), but I don't think they have that many options to
pay down debt further. I suppose they can pay down
some of the revolving bank credit, but I'd rather see
them invest in their own company by buying some shares
while they're on firesale.
Since the stock
market is giving JBX such a low P/E, reducing the
oustanding shares helps boost earnings per share and can get
the stock moving up. It worked last year and was a
great return on investment for the company, which paid
an average of $14.29 per share. It's also a vote of
confidence by the company that the street usually reacts
Please do not use your extra
cash to buy back shares. Pay down the debt. Debt
almost killed us a few years back. Invest in the balance
sheet and invest in the growth.
term FM/JBX shareholder since $5.00 a share.