The company reported excellent first-quarter fiscal 2017 earnings last week that sent shares up 9% to more than $45. Earnings per share of 61 cents beat analyst expectations of 49 cents by 24.5%. Management raised full-year fiscal 2017 earnings guidance 5 cents to range between $2.70 and $2.85.
Revenue for the quarter was up 3% over first-quarter fiscal 2016. Management maintained its guidance for 10% annual revenue growth. Order backlog grew 8% and has remained above $500 million for four quarters. Although order backlog can be unpredictable based on the timing of orders, it is a strong indicator of future growth.
Operating income of $26.2 million was up 44% from the same quarter a year ago. Much of this improvement came from higher profit margins, which rose to 26% from 23%.
Management pointed out two key indicators driving increasing revenue for architectural firms. There have been 75 straight months of job growth in the U.S. private sector, which has increased demand for office space. The Architectural Billings Index, a forward-looking indicator of building plans, has increased 21 of the last 24 months, with May logging in the highest number for the past year.
Apogee (NSDQ: APOG) is well-positioned to prosper from the continued commercial-building activity with its menu of specialized glass installation.
Consumer spending increased another 0.4% in May. Spending on durable goods, products like home appliances and furniture, rose 2.3% for the month, largely on improving auto sales.
A 1.8% increase in existing home sales in May should lead to more furniture sales for Ethan Allen (NYSE: ETH).
The company introduced one of its three new lines of furniture last month. The Buckhead line, described as a farmhouse style, was introduced in June. The Santa Monica line, a casual, beach-inspired look, will launch in July and the industrial, urban Brooklyn line will come out in August. All three lines are available for viewing on the company’s website and should lure younger customers to Ethan Allen stores.
The bone and joint replacement maker officially launched its Acapella One Cervical Spacer System this week. The device is a pre-assembled cage for the spine that allows surgeons to restore spinal disk spacing. Like most of the company’s products, the Cervical Spacer System is designed to simplify spinal disk surgery. The device has been implanted in more than 500 patients since it was first announced in 2015.
The company’s share price reached a 52-week high last week closing at $26. Despite positive developments with some new products, we still cannot justify buying the stock at this level. Exactech’s (NSDQ: EXAC) price-to-earnings ratio equals 19, but earnings are growing only 13%.
Auto-dimming rearview mirror maker, Gentex (NSDQ: GNTX), will pay a quarterly dividend of 9 cents per share on July 20 to shareholders who own the stock as of July 7. The company will announce second-quarter earnings results at the end of July.
Installed Building Products
Existing home sales for May were up 1.8%, the highest pace in almost a decade. Low supply and high demand of existing homes encourage more new home starts, which benefits Installed Building Products (NYSE: IBP). The company installs insulation, garage doors, gutters and other home products.
Publicly traded home builders Lennar and KB Home, both customers of IBP, recently reported strong earnings and backlogs. All major regions except for the Midwest saw strong increases for home sales last month.
Integrated Device Technology
Integrated’s (NSDQ: IDTI) chips are being used in many new ways, from allowing glucose sensors to communicate with devices to speeding up the capabilities of a nuclear research center.
Last week an implantable glucose sensor using Integrated’s technology received government approval to be sold in European Union countries. The device allows diabetics to monitor their blood sugar levels wirelessly and without constant painful needle pricks. Integrated supplies a component to Senseonics that enables the implanted sensor to communicate wirelessly to an “on-body” wearable monitor. Diabetes affects more than 371 million people worldwide, which provides a large market for Integrated outside of its traditional revenue stream from consumer electronic devices.
CERN, the European Organization for Nuclear Research, announced that its data-processing framework has successfully been ported over to a network using Integrated Device’s RapidIO networking chips. This is the first step in a multi-year project designed to improve speed and efficiency of data analytics for this massive data center.
At an RW Baird conference in early June, On Assignment’s (NYSE: ASGN) management reiterated its expectation that second-quarter earnings per share will be 78 cents and revenue will be $600 million. These estimates represent respective growth of 24% and 28%. Management also introduced an estimate for 14% revenue growth to $3 billion in 2018, its first run at 2018 estimates.
Despite these incredible growth rates, On Assignment trades for just 10 times its 2017 estimate of $3.44. We reiterate our buy and look for updates on progress with the company’s newly purchased digital ad design firm Creative Circle.
The company’s share price climbed back up to $13 at the end of June after Sidoti analysts downgraded the stock at the start of the month. Sidoti did not lower any estimates or change its opinion about the health of Supreme’s (NYSE: STS) business.
We reiterate our $23 target for the stock. Earnings are expected to grow 25% in 2016 and 20% in 2017. A recent announcement by industry goliath Walmart expands the company’s two-day free shipping to much of its merchandise and illustrates the importance of speedy product delivery for online merchants. The seismic shift to online shopping is buoying demand for Supreme’s truck bodies, which are used in local delivery.
Note our interview with Supreme CFO Matthew Long in this issue.