I agree. Got more Monday and came close to another buy today. Despite the fact that there was really nothing else Ferguson could say, his point that instead of many low margin weekly orders plus a large special order one quarter a year at low margin, the better situation would be to sell much more medical product, more bed frames, and depend upon the sales force to try to keep a steady flow through the factories. And a few smaller low margin regular customers would not hurt either. The on-off nature of the deal with sinomax has been too rough on us. Many companies limit the importance of any one customer for just that reason.
As usual, I am impressed by the letter to shareholders. As the swan song of Mr Blodnick, there is a great deal of information which I needed to read. Straightforward and well done.
Among the little noticed pleasures I find in reading our annual report (paragraph 18 on page 67) is reporting of both goodwill and intangibles. It's been some years since I studied accounting, but the fact that both items are apparently being amortized suggests honest reporting to me. I believe I've understood recently that companies pay more than book for acquisitions resulting in goodwill. They are required to periodically evaluate those amounts and to write down anything which does not look to be as valuable as it was estimated to be upon purchase. But I don't think they are now required to amortize those amounts.
Yet SPAN chooses to use a more conservative treatment and has decreased Canadian goodwill and intangibles from approximately $6mm to $4mm over the past two years. I think that should result in lower EPS than possible and a more accurate representation of book value. I should check to be sure I'm separating my financial and book accounting from tax accounting and know what is being reported in this section, so I may be wrong.
I've said several times lately that I like SPAN's management. They took a huge but necessary gamble in buying SPAN Canada. Huge because, while the dollar amount was not large, going from a single factory to two makes huge challenges. And going to one in a different country is even more difficult, even Canada. Last year sales from that division increased 30% or $2.8mm to $12mm. Now we see a single order which could increase this year's sales $1.9mm to a new customer. At least I think Toronto is a new customer though SPAN Canada is located nearby.
It now appears that the gamble taken by SPAN has paid off and they can be justly proud of not making a mistake. A third factory would be a smaller bite to take at this point and the funds are available to make another purchase. Yet I applaud management for not being in too much of a hurry in taking another huge risk. Purchases of companies generally favor the seller who of necessity know their business better than the acquirer possibly can.
Remember, SPAN is a very small specialized manufacturer. They cannot afford a mistake at this point. Their ability to survive a bad break like the loss of a major order, suggests that they have the ability to stand one blow, but they have competitors all around with more resources and similar products ready to take orders from us. We are good, but then, we have to be. There is plenty of potential for increased profit from the two divisions.
While the manufacturing effort hums along, the big opportunity comes to Clyde Shew and his ability to expand the customer base while the endeavor bed retains a lead position in the market. I was surprised to see that he was employed at SPAN longer than either Mr. Ferguson or Coggins. Thanks to Mr O'Reagan whom I don't believe I've yet met for the engineering of that bed.
Bed frames at about 17% of sales would be about $11mm and growing. This order will include mattresses I suppose, but still might include as much as $1.3 mm in frames each year or a good 10% of sales. I am encouraged though the order is unlikely to affect the earnings report for the quarter ending Mar 31. I might be willing to buy some more at $18 should I get such a chance before the effects of this order or of other pleasant surprised show up in the market. Always takes a while for small companies to have such news noticed and it's one reason I like owning such stocks. More time to think and react.
Thanks for the heads up. It is encouraging indeed as I believe their other big province contract came from British Columbia. I tried to post as a new topic, but Yahoo would not permit it. Anyway, medical bed frames amounted to 17% of total corporate sales last year, up from 13% in 2013, so we are seeing gradual uptake there. And that is where I look for a breakout in SPAN's size and profitability. The factory in Greenville is probably pretty constrained and I really am frightened of opening satellite facilities--it's so much easier to manage one factory--when one goes to multiple factories a whole new system must be developed and frequently the combination implodes.
I did get good definitive answers to my questions from SPAN. I was wrong in assuming there was a definite contract or bid letting for retail customers. Instead the orders show up as PO's on a regular basis. However, since most go through one of the distributors SPAN sometimes does know that they will lose the business that distributor has sold to another manufacturer. And I was reminded that the information was considered material so a press release was issued about November of 2014 letting everyone know that SPAN knew it was going to lose a significant part of ongoing orders through a distributor. And by the time I was there at the annual meeting in February, the alternate producer had in some way underperformed and SPAN was again asked to produce about half of orders or a bit more. Later 100% from that distributor I think.
There is another piece of business which, while not on a formal bid basis apparently, SPAN does hear about it as an upcoming order sometime from late January to late April and that is what is described as the seasonal promotion or Black Friday promotion. I guess that has not been seen yet, but it is still early and we can hope that SPAN will be awarded that special again this year.
Meantime, SPAN continues to fill all the PO's for consumer mattress overlays which the distributors sell--at least of that particular type. And there I'm clearly getting pretty fuzzy.
Not the kind of company I thought I owned. Nor do I like seeing so many political people in RAVN. One thing good is that they'll be able to deliver the news in ever more evasive ways.
Change in Directors or Principal Officers
Item 5.02. Departure of Directors or Certain Officers; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
On February 23, 2016, Raven Industries, Inc. (the "Company") announced that Heather Wilson has joined the Company's Board of Directors. The appointment is effective immediately.
Dr. Wilson currently serves as the President of South Dakota School of Mines & Technology in Rapid City, SD. Prior to being named President in 2013, Dr. Wilson served in the U.S. House of Representatives representing New Mexico's first district from 1998-2009 where she was a senior member of the House Energy and Commerce Committee and the House Permanent Select Committee on Intelligence. Dr. Wilson also previously worked as a senior advisor to several large scientific and defense companies.
Perhaps Mssrs Ferguson and/or Coggins would like to include that information in their presentation Thursday. On second thought, that may not be public--probably isn't. On second thought, I guess there won't be a conference call with Thursday's presentation, so that opportunity won't exist.
The meeting is Thursday. I have considered calling SPAN to ask about when the contract with that major retailer occurs. And when SPAN learns whether they are part of the special promotions which we've seen a few times.
It may have been stated somewhere, but I did not see it in the annual report (which was excellent by the way). Clearly that contract is of major importance to our stock price and I'm sure it is announced to the SEC as soon as awarded so that everyone knows together. Probably in a press release to keep individuals from inside the company from having early knowledge they could be tempted to use.
So all of us knowing the usual date would not be a violation, but unless that information has been publically given out, it might be wrong for me to ask Richard Coggins to give it to me individually. Or at least for him to give me a good answer.
Until one news article from Reuters today, I had been unaware of a challenge to lower courts' decision that a patent violation suit against ZBH had been for damages only. This case apparently is to lower the standards for infringement so that if the violation was "willful" and careless, triple damages could be awarded by a court.
I think I like the higher standard for my stocks in companies with a lot of intellectual property, but, clearly it is a negative for ZBH or others who push the limits of others' patent protection. I find myself rather disliking ZBH for being so aggressive, as apparently they were since they had been found guilty in earlier decisions.
I think you've said it well, Steve. I just wrote dump for a loss on my summary sheet for DAKT. I'm glad you reminded me that part of what mgmt considers important is Brookings and student support. But I'm afraid management is just out of their league--too many really smart and aggressive competitors nowadays. I had hoped to gain on some short term spikes from my last few buys but always forgot to take action at the appropriate times as my holding is so small.
I also noted the drop in cash and securities from the last quarter and year. $12mm and 27mm is what I wrote. While they don't have much debt, I doubt that they could get much long term debt at reasonable prices with the history of marginal profitability and unpredictable results. So I'd say little danger of near term bankruptcy, but inability to earn reliably probably means just a quaint little cottage industry for Brookings/S.Dakota school of whatever it is.
That's a pretty negative assessment, isn't it. But important I think because there seem to be quite a few relatively unsophisticated investors banking on DAKT as a significant powerhouse in the mfg world. I thought it might happen, but don't at this point. Sorry.
And I bought at $125 and placed an order to sell a 120 put for Jan 2016. I don't know I'm right, but suspect the odds of going much higher outweigh those of going much lower. We are told to expect poor EPS comparisons for the next quarter, so there may be more chances to buy still coming up at even better prices. Probably just as I'm too busy with taxes to notice that I should be buying PRGO. Still it is now my 3rd largest holding and I have begun thinking of it as an alternative to my JNJ.