Daktronics' Scoreboard Didn't Light Up in Q4

MarketsMotley Fool

Scoreboard and large-scale video display manufacturer Daktronics (NASDAQ: DAKT) reported fourth-quarter results early on Wednesday morning. As is often the case for small-cap companies that sell a relatively small number of high-priced items, Daktronics' results can be very lumpy and this report showed plenty of evidence for that thesis. A significant revenue shortfall paired up with relatively fixed operating costs, resulting in a deeper pool of red ink on the bottom line.

Daktronics' first-quarter results: The raw numbers

Continue Reading Below

Metric

Q4 2019

Q4 2018

Year-Over-Year Change

Net sales

$128 million

$138 million

(7.5%)

Net income (loss)

($10.8 million)

($3.8 million)

(183%)

GAAP earnings (loss) per diluted share

($0.24)

($0.09)

(167%)

What happened with Daktronics this quarter?

  • The company's operating expenses came in 1.5% below the year-ago quarter's and the cost of goods sold declined by 4.6%. Those tighter belts couldn't stop operating losses and negative bottom-line earnings from falling deeper into the red since top-line sales evaporated faster than Daktronics' costs.
  • The Wall Street consensus had been calling for a net loss of $0.04 per share on sales in the neighborhood of $142 million. Daktronics fell far short of these estimates.
  • In the fourth quarter, Daktronics' commercial sales increased by 10% year over year and transportation revenues rose by 6%. Both of these segments also recorded year-over-year growth in order bookings, led by a 48% jump in transportation-related orders.
  • Live events equipment saw sales fall 19% while order volumes came in 13% lower. High school park and recreation revenues stopped 7% below the year-ago period's tally while that division's order book turned out 10% thinner.
  • International sales fell by 25% but order bookings rose by 12%.
  • Daktronics' total order backlog now stands at $202 million, up from $168 million three months ago and $171 million at the end of fiscal year 2018.

What management had to say

In a prepared statement, Daktronics CEO Reece Kurtenbach focused on what worked in fiscal year 2019.

"As we entered into fiscal 2019, we focused on winning more orders and maintaining our product release velocity. We achieved both," Kurtenbach said. "Our order volume was the third highest level in our company's history, even though we had fewer multimillion-dollar projects as compared to other record years."

Looking ahead

Daktronics' management kept a stiff upper lip regarding the company's growth prospects, doubling down on the long-term optimism they signaled three months ago.

"The current global tariff and trade environment continues to create cost headwinds on commodity and components used in the production of our solutions in the U.S. market," Kurtenbach said in a prepared guidance statement with strong echoes of the third-quarter report's business forecast. "Over the long-term, we believe the situation will stabilize and we will continue to work to minimize the impact."

Kurtenbach also added some color commentary on how the growing order backlog helps his company overcome the current climate of heavy macroeconomic headwinds:

"This backlog along with our broad and innovative product and technology portfolios, our global customer base, the replacement cycles in our business, and the continued market adoption of digital solutions positions us for growth," he said. "During fiscal 2020, we will continue to serve a growing global customer base in commercial, sports and government markets. Our focus in product development continues to remain on new technologies and advanced manufacturing techniques."

As a longtime Daktronics shareholder myself, I'm familiar with the company's unpredictable quarter-by-quarter results. Meanwhile, free cash flows were still positive in the fourth quarter and the balance sheet looks solid. I see no reason to exit my Daktronics position in a blind panic here, at least not if you have the patience to ride this storm until the Chinese-American trade war is resolved.

10 stocks we like better than DaktronicsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Daktronics wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Anders Bylund owns shares of Daktronics. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.