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Cyclical companies tend to make the bulk of their revenues in a single quarter, or even a half of a year. This business model has been successful for many companies, think toy companies, or retail merchants. But when the “off peak” quarters are worse than expected, and when management states they now expect their cyclical heights to be more back-ended than expected, warning signals start going off. This is the case for our Zacks Bear of the Day, Franklin Covey (FC - Free Report) .
This Zacks Rank #5 (Strong Sell) company is an international learning and performance solutions company dedicated to increasing the effectiveness of individuals and organizations. They provide consulting services, training and education programs, educational materials, publications, assessment and measurement tools, implementation processes, application tools and products designed to empower individuals and organizations to become more effective.
Recent Earnings Results
On December 23rd, management made a Q1 17 pre-earnings announcement where they stated that Q1 adjusted EBITDA would show a loss of -$2.5 million, compared to a profit of $3.4 million in the year ago quarter. Management cited increased business investments, timing delays, and their business model shift towards an all-access subscription sales for customers as reasons for the losses.
Then on January 5th, management posted Q1 17 results where they missed both the Zacks consensus earnings and revenue estimates for the fourth consecutive quarter. On a year over year basis, the company reported losses in the following categories; Net revenues -12%, Gross profits -16%, EBITDA -206%, Operating income -405%, Net income -601%, and Adjusted earnings per diluted share -694%. Management also saw general and administrative expenses rise by 10% during the same time frame.
Management’s Take
According to Bob Whitman, Chairman and CEO, “Our fiscal first quarter is an important staging quarter in which we make significant investments in growing our sales and delivery forces, marketing, developing new offerings, and building strong sales pipelines that form the basis for growth through the balance of the year. We were very pleased to have achieved significant year-over-year growth in the amount of All Access Passes invoiced during the first quarter, including a very high renewal rate for those All Access Passes sold in last year’s first quarter. We were also pleased that our sales pipelines grew significantly during the quarter, and that a significant start to the conversion of those pipelines began in December. As a result of the foundation laid the first quarter, we expect our results for fiscal 2017 to fall within our previously provided guidance range, specifically, that the sum of reported Adjusted EBITDA plus the change in deferred revenue, less certain costs, will fall between $35 million and $38 million.”
Price and Earnings Consensus Graph
As you can see in the graph below, the stock price has recently dipped, and 2017 expectations have plummeted.
Due to the poor earnings results, and weaker than expected outlook earnings estimates for Q2 17, Q3 17, FY 17, and FY 18 have all seen large revisions over the past 7 days; Q2 17 fell from -$0.10 to -$0.17, Q3 17 dropped from -$0.07 to -$0.08, FY 17 plunged from $0.18 to -$0.03, and FY 18 was trimmed from $0.63 to $0.35.
Moreover, as you can see in the table below, estimates have been significantly declining over the past 90 days.
Bottom Line
Currently, management expects second quarter 2017 to be weak like their Q1 results, and that positive earnings will be more back-end loaded than normal. The company’s shift towards all-access subscription sales model, has created a lot of noise within their financials, which has in turn created some uncertainty about overall growth.
Given the questions surrounding the company, it would be wise to look elsewhere in the near term. So if you are inclined to invest in the Consulting Services sector, you would be best served by looking into Gartner Inc. (IT - Free Report) , and or NV5 Global Inc. (NVEE - Free Report) , both of which carry a Zacks Rank #2 (Buy).
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To end on a positive note, you're invited to see the best long-term trades Zacks Research is uncovering today. These moves have double and triple-digit profit potential and are rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>
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Bear of the Day: Franklin Covey Co (FC)
Cyclical companies tend to make the bulk of their revenues in a single quarter, or even a half of a year. This business model has been successful for many companies, think toy companies, or retail merchants. But when the “off peak” quarters are worse than expected, and when management states they now expect their cyclical heights to be more back-ended than expected, warning signals start going off. This is the case for our Zacks Bear of the Day, Franklin Covey (FC - Free Report) .
This Zacks Rank #5 (Strong Sell) company is an international learning and performance solutions company dedicated to increasing the effectiveness of individuals and organizations. They provide consulting services, training and education programs, educational materials, publications, assessment and measurement tools, implementation processes, application tools and products designed to empower individuals and organizations to become more effective.
Recent Earnings Results
On December 23rd, management made a Q1 17 pre-earnings announcement where they stated that Q1 adjusted EBITDA would show a loss of -$2.5 million, compared to a profit of $3.4 million in the year ago quarter. Management cited increased business investments, timing delays, and their business model shift towards an all-access subscription sales for customers as reasons for the losses.
Then on January 5th, management posted Q1 17 results where they missed both the Zacks consensus earnings and revenue estimates for the fourth consecutive quarter. On a year over year basis, the company reported losses in the following categories; Net revenues -12%, Gross profits -16%, EBITDA -206%, Operating income -405%, Net income -601%, and Adjusted earnings per diluted share -694%. Management also saw general and administrative expenses rise by 10% during the same time frame.
Management’s Take
According to Bob Whitman, Chairman and CEO, “Our fiscal first quarter is an important staging quarter in which we make significant investments in growing our sales and delivery forces, marketing, developing new offerings, and building strong sales pipelines that form the basis for growth through the balance of the year. We were very pleased to have achieved significant year-over-year growth in the amount of All Access Passes invoiced during the first quarter, including a very high renewal rate for those All Access Passes sold in last year’s first quarter. We were also pleased that our sales pipelines grew significantly during the quarter, and that a significant start to the conversion of those pipelines began in December. As a result of the foundation laid the first quarter, we expect our results for fiscal 2017 to fall within our previously provided guidance range, specifically, that the sum of reported Adjusted EBITDA plus the change in deferred revenue, less certain costs, will fall between $35 million and $38 million.”
Price and Earnings Consensus Graph
As you can see in the graph below, the stock price has recently dipped, and 2017 expectations have plummeted.
Franklin Covey Company Price and Consensus
Franklin Covey Company Price and Consensus | Franklin Covey Company Quote
Declining Future Earnings Estimates
Due to the poor earnings results, and weaker than expected outlook earnings estimates for Q2 17, Q3 17, FY 17, and FY 18 have all seen large revisions over the past 7 days; Q2 17 fell from -$0.10 to -$0.17, Q3 17 dropped from -$0.07 to -$0.08, FY 17 plunged from $0.18 to -$0.03, and FY 18 was trimmed from $0.63 to $0.35.
Moreover, as you can see in the table below, estimates have been significantly declining over the past 90 days.
Bottom Line
Currently, management expects second quarter 2017 to be weak like their Q1 results, and that positive earnings will be more back-end loaded than normal. The company’s shift towards all-access subscription sales model, has created a lot of noise within their financials, which has in turn created some uncertainty about overall growth.
Given the questions surrounding the company, it would be wise to look elsewhere in the near term. So if you are inclined to invest in the Consulting Services sector, you would be best served by looking into Gartner Inc. (IT - Free Report) , and or NV5 Global Inc. (NVEE - Free Report) , both of which carry a Zacks Rank #2 (Buy).
Long-Term Buys You Won't See in the News
To end on a positive note, you're invited to see the best long-term trades Zacks Research is uncovering today. These moves have double and triple-digit profit potential and are rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>