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Schnitzner Steel Revisit

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January 17, 2008 – Comments (3) | RELATED TICKERS: SCHN

In Steel spiel - Schnitzner Steel I gave my reasons for not like it.  It seems the analysts missed yet again

Reporting also really gets to me.  It grossly misleads investors.  That story I linked to is a disgrace.  It says:

"Earnings per share increased 23 percent to 85 cents. Revenue rose 18 percent to $604."

That is a rosy description of this company.  That is true if you compare to the quarter a year earlier when earnings were $510 million.  However, the quarter before earnings were $749 million, so revenue in fact DECLINED by 24%.  Earnings were 47% higher the previous quarter, from $1.25 to $0.85, and the quarter before earnings were $1.47.  Seriously earnings were 73% higher two quarters before.

Further, this huge decline has come despite their share buy back program.  The earnings available to shares was actually 54% higher the quarter before and 77% higher two quarters earlier.  The share buy back has actually hidden the degree of the implosion of earnings.

This stupid company, look even closer, they've increased long term debt by about $100 million and I doubt that the cost of that extra debt has worked into the financial statements yet, so expect an even bigger MARGIN squeeze.

If you take out the $18-19 million increase in goodwill and intangible assets, real shareholder equity for the company went down by $9 million.

Inventory is up 21%, planning for a booming economy are they?

3 Comments – Post Your Own

#1) On January 18, 2008 at 2:05 PM, anchak (99.86) wrote:

"Inventory is up 21%, planning for a booming economy are they?"

Nope its piling up, as in the streets of Bangladesh (....I find that a little bit of an exaggeration and hard to believe...... )......

Wonderful analysis.....I wish I had your clarity.......

Honestly, you are a little too much pessimistic for my own liking....like abit....but people will only call you a pragmatist looking at what's going on!

Are you willing to give classes on Enterprise valuation?

Like on your other post today...if you think about wealth migration.... GM today does great business in India and China.So there would be more and more companies which will eventually become a local company in the emergent world and almost stop being a US organization - isnt there value in those? 

 

 

 

 

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#2) On January 18, 2008 at 8:23 PM, dwot (97.03) wrote:

I don't believe China will not be able to do what people believe of it.  Yes there will be more growth there than in North America, but they have too much population.  And their housing costs have gotten beyond what local people can afford as well, I think I was reading in Bejing $200/sq ft.  With "cheap" wages, that is dire.

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#3) On January 19, 2008 at 10:11 PM, anchak (99.86) wrote:

Ma'am...with all due respect there needs to be a separability in your assertions.

(1) Chinese growth: You kinda answered your own dilemma....the population needs the growth to survive...otherwise there will be anarchy.

(2) The outcome of the growth is not pretty...inflation is high 6-7% on official numbers against 10% growth....so real expanse is not that stellar...it beats the hell out of the rest of the globe though.

(3) House prices- that in East Asia...is a strange thing..... there is real demand and supply only in the cities.... and demand outstrips supply based on growth and new influx. Most people in Asia can rarely aspire to Home Ownership - So in the small niche market it is completely an oligopolistic situation - a handful few on both demand and supply side setting up based on what they can afford and how much each asks respectively.

(4) House price crashes in Asia are few and far between.....that's not saying they dont happen ....they do....but its like a decapitating correction.....but its localized to the specific market. Like if infrastructure leads to good statellite developments around Shangai/Beijing etc....people will migrate.

But key here is sustained growth ....and its marginal growth here in a specific upper-to rich middle class and really rich. That's what drives demand.....and there is a complete lack of cognition that House prices correct.

 

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