DDIC Inches Past Estimates

DDI Corp.'s (DDIC - Snapshot Report) net earnings per share of 21 cents for the fourth quarter 2010 edged past the Zacks Consensus Estimate by a penny and increased 600% on year-over-year basis. However, EPS declined 32.3% from the last quarter.

For full year 2010, net income per share increased 1022.2% from last year to $1.01 per share. This also beat the Zacks Consensus Estimate by a penny.

The year 2010 was marked as a successful year for the company as it drove the net sales, margins and earnings to record levels and completed the integration of the Coretec acquisition.

The Bygone Quarter & Year

Management stated that DDi Corp. had started operating from three facilities, but by the year end or in the fourth quarter the company consolidated all operational activity into one facility at Sheppard Avenue. Hereafter, the company is concentrated on operational execution and efficiencies of the facility.

Net Sales for the quarter increased 55.7% from prior year quarter but shed 4.7% sequentially to $65.7 million and failed to beat the Zacks Consensus Revenue Estimate of $68.0 million. Stronger end market demand along with the net sales contribution from the Coretec acquisition helped the yearly growth, while softer end market demand in the commercial markets and 5% lesser manufacturing days associated with the holiday season was the resultant for the sequential decline.

For full year 2010, net sales increased 69.5% from last year to $267.8 million but missed the Zacks Consensus Revenue Estimate of $269.0 million.

Gross margin for the quarter increased 163 basis points from prior year quarter to 22.1% driven by improved operational efficiencies, derived from the net sales increase and operating expense controls. However, the gross margin declined 38 basis points owing to de-leveraging on lower net sales as well as operational inefficiencies associated with the Toronto operations, reportedly.

Operating income for the quarter was up 240% from prior year quarter but fell 23.9% sequentially to $5.1 million. The sequential decline was due to lower net sales and gross profit, and for $0.8 million restructuring charge related to the company’s departure from its Toronto-based McNicoll facility.

Management stated the company finished 2010 in solid financial position, with solid increase in cash flow for the year and a stronger balance sheet. As on end of December 2010, total cash and cash equivalents equaled to $28.3 million versus $19.4 million in the year end 2009. DDi Corp. had no borrowings outstanding.

The strong financial condition helped the company to improve shareholder value and thereby paid a fourth quarterly cash dividend of 10 cents per share of common stock on November 30, 2010. Also, the Board of Directors declared a dividend of 10 cents per share of common stock, on February 17, 2011, which is to be paid on March 30, 2011 to shareholders of record as of March 15, 2011.

Road Ahead

For 2011, management expects the yearly growth for the broader North American PCB industry to be in the mid-single digits. Management also said that as the company continues to execute the long-term strategic plan, the technical capabilities, sales distribution network and extensive customer base, position it to exceed the anticipated industry growth rate in 2011 and take incremental market share.

Conclusion

Estimates for the quarter, next quarter and the current and next quarter have remained stable in the run-up to the earnings release with no analysts revising estimates in the last 30 days. The full year Zacks Consensus Estimate for next year remains unchanged at $1.39 per share and for the next quarter it is projected at 33 cents per share.

Peers for DDi Corp. include Rogers Corporation (ROG - Snapshot Report) and TTM Technologies Inc. (TTMI - Snapshot Report), among others.

We currently have a Zacks #3 Rank for DDi Corp. which translates into a Hold rating on short term basis. For longer term, we have a Neutral recommendation.

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