| Tech Stock News and Analysis |
|
|
| Tuesday, September 26, 2006 |
Shares of Merix Corp. tumbled Tuesday, after the maker of printed circuit boards lowered its earnings outlook for the fiscal first quarter.
In making the revision, the Forest Grove, Ore.-based company cited higher raw material costs and outsourcing and pension costs in Asia.
Shares of Merix fell $3.51, or 25 percent, to $10.54 in late trading on the Nasdaq Stock Market. Tuesday's weakest level, on heavy volume, was $10.34. On a 52-week basis, there was a low of $5.10 last Sept. 28 and a high of $14.39 on Monday.
After market close Monday, Merix said it expects first quarter, per-share earnings of 15 cents to 17 cents, compared with an earlier forecast of 25 cents to 30 cents.
Excluding items, Merix expects per-share earnings for the quarter ended Aug. 26 of 19 cents to 21 cents. That's down from an earlier forecast of 31 cents to 35 cents.
Analysts surveyed by Thomson Financial had forecast, on average, first-quarter earnings of 31 cents a share. Such estimates typically exclude items.
"We do owe our investors bottom-line profitability enhancement with the revenue growth," said Merix Treasurer Lynda Ramsey, who called the market's reaction to the news disappointing. "We have some work to do to get our margins back in line. Overall, it's still a very healthy environment."
But analyst Kevin Kessel of Bear Stearns said in a research report that he expects printed circuit board makers to struggle with passing through higher costs.
The company has said its supplier of copper laminate, which increased prices in July, plans to raise them again in October.
Kessel cut his rating on the stock to "underperform" from "peer perform" on Tuesday. He doesn't have a position in the stock. Bear Stearns doesn't have an investment-banking relationship with Merix.
While Merix and competitor TTM Technologies Inc. are facing higher costs, "the issues with Merix are more company-specific," analyst Shawn Harrison of Longbow Research said. Harrison doesn't own shares of Merix. Longbow doesn't have an investment-banking relationship with the company.
"TTMI has no Asian operations," Harrison said. "Merix generates approximately half their revenue from Asia, where raw materials are a significant portion of their cost of goods sold."
Merix is talking with customers about raising prices for the first time, Harrison said. The company's current contracts in the automotive sector, which account for 16 percent of revenue, don't include escalator clauses for raw material costs, he added.
"Once these issues work out, things will begin to normalize," Harrison said. "That will take at least two quarters for Merix."
Ramsey said that, while the current automotive contracts don't include escalators, the company will be including those in this fall's negotiations.
Bear Stearns analyst Kessel cited "moderating demand" in cutting his rating on the stock.
Ramsey said Merix hadn't seen any slowdown in orders, but wouldn't speculate on whether one might develop.
"The only thing we can refer to is what we see in our own factories," she said. "We have seen very slight softening in Asia, but our North American demand is still extremely strong." |
|
|
|
|
| Previous Post |
|
| Archives |
|
| Links |
|
| Powered by |
 |
|
