When Orange County companies start releasing fourth-quarter results this week, the news stands to be grim for many. But some local companies stand to defy a trend toward reduced profitability and slower sales.
“A lot of companies have downgraded their earnings for the fourth quarter,” said Russ Tolander, director of institutional sales at Newport Beach-based Roth Capital Partners Inc. “They will be lower than what was expected coming out of Q3.”
A host of OC companies have warned analysts about what to expect for the fourth quarter. Chip maker Conexant Systems Inc. said it sees a loss instead of an expected profit for the quarter, while revenue would be 20% lower than forecasted. Intersil Holding Corp., another chip maker, said it expects to meet earnings estimates but fall 5% short of revenue projections. Other companies that have warned about their upcoming results include PacifiCare Health Systems Inc. and eMachines Inc.
While these companies are part of a large contingent nationally, the outlook for other OC companies isn’t so bad. In November, Broadcom Corp. executives said they are comfortable with estimates for the fourth quarter, despite troubles at Cisco Systems Inc. and other key customers. Nor has Newport Corp. offered any discouraging news about its results, even though Nortel Networks Corp. and other big customers have.
Officials at Oakley Inc. said they’re at ease with estimates for the quarter, while Allergan Inc. officials said they see continued sales and profit growth for the period.
If results from earlier in 2000 are any indication, then the fourth quarter could go down as a mixed bag for OC companies.
The 22 companies in the Business Journal’s Billion Dollar Club index together posted a collective net loss of $238 million for the third quarter, vs. a profit of $304 million in the third quarter of 1999. Total sales for the Billion Dollar Club companies rose 16% to $18.7 billion in the period. The index includes companies with a market capitalization of $1 billion or more.
Acquisition Factors
The profit figures, supplied by Roth Capital, include both one-time gains and charges. As a result, acquisitions were a big factor in the collective third-quarter loss. In fact, a $505 million charge at Bergen Brunswig Corp. related to its buy of PharMerica Inc. last year accounted for the swing into the red.
Excluding the Bergen charge, the companies were slightly less profitable in the third quarter than they were a year ago. Bergen, for instance, missed third-quarter profit estimates by 2 cents a share, excluding the write-off.
Irvine-based Broadcom also had an impact on the group’s profitability with a net loss of $19 million after taking a charge related to acquisitions and taxes on stock option exercises. Unlike Bergen, though, the Irvine chip maker easily beat profit estimates before charges.
For the trailing four quarters ended Sept. 30, the Billion Dollar Club also saw net profits decline. The companies had aggregate profits of $1.02 billion for the 12 months, down 6% from $1.09 billion in the year-ago period. Without Bergen’s charge, profits were up 40%.
Smaller Companies
For companies in the Business Journal’s OC 100 index, the third quarter brought a collective net loss of $75 million, vs. a $78 million loss in the year-ago quarter. The marginally smaller loss came on higher revenue: aggregate sales in the third quarter increased 11% to $8.24 billion. But despite a near-billion-dollar increase in sales, the smaller companies that make up the OC 100 failed to rack up a collective profit.
Losses for many OC 100 companies also included write-offs, restructuring charges and acquisition-related expenses as well as any one-time gains.
Among the companies in OC 100 that reported large losses were Aliso Viejo-based buy.com Inc. and Cardiac Science Inc. of Irvine.
For the 12 months ended Sep. 30, the OC 100 companies had a collective loss of $431 million, vs. aggregate profit of $101 million in 1999.
Costa Mesa-based Tickets.com Inc. saw its net loss grow to $117 million for the 12 months from $35 million in the year-ago period. Edwards Lifesciences Corp. also swayed the group, going from $62 million in net profit in the year-ago period to a net loss of $251 million for the 12 months ended Sept. 30, resulting from one-time write-offs. n
