Robert Half International Misses on the Top and Bottom Lines

Robert Half International (NYSE: RHI  ) reported earnings on Jan. 26. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), Robert Half International missed slightly on revenues and missed expectations on earnings per share.

Compared to the prior-year quarter, revenue expanded, and GAAP earnings per share increased significantly.

Margins grew across the board.

Revenue details
Robert Half International chalked up revenue of $973.5 million. The 13 analysts polled by S&P Capital IQ looked for a top line of $989.5 million. Sales were 14% higher than the prior-year quarter's $851.6 million.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions.

EPS details
Non-GAAP EPS came in at $0.30. The 16 earnings estimates compiled by S&P Capital IQ predicted $0.31 per share on the same basis. GAAP EPS of $0.31 for Q4 were 76% higher than the prior-year quarter's $0.17 per share.

Source: S&P Capital IQ. Quarterly periods. Figures may be non-GAAP to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 39.8%, 140 basis points better than the prior-year quarter. Operating margin was 7.4%, 240 basis points better than the prior-year quarter. Net margin was 4.4%, 150 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $989.7 million. On the bottom line, the average EPS estimate is $0.28.

Next year's average estimate for revenue is $4.13 billion. The average EPS estimate is $1.35.

Investor sentiment
The stock has a two-star rating (out of five) at Motley Fool CAPS, with 143 members out of 166 rating the stock outperform, and 23 members rating it underperform. Among 62 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 56 give Robert Half International a green thumbs-up, and six give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Robert Half International is outperform, with an average price target of $32.15.

• Add Robert Half International to My Watchlist.

Why Trex May Be About to Take Off

Here at The Motley Fool, I've long cautioned investors to keep a close eye on inventory levels. It's a part of my standard diligence when searching for the market's best stocks. I think a quarterly checkup can help you spot potential problems. For many companies, products that sit on the shelves too long can become big trouble. Stale inventory may be sold for lower prices, hurting profitability. In extreme cases, it may be written off completely and sent to the shredder.

Basic guidelines
In this series, I examine inventory using a simple rule of thumb: Inventory increases ought to roughly parallel revenue increases. If inventory bloats more quickly than sales grow, this might be a sign that expected sales haven't materialized. Is the current inventory situation at Trex (NYSE: TREX  ) out of line? To figure that out, start by comparing the company's inventory growth to sales growth. How is Trex doing by this quick checkup? At first glance, pretty well. Trailing-12-month revenue decreased 1.0%, and inventory decreased 42.3%. Over the sequential quarterly period, the trend looks healthy. Revenue dropped 13.4%, and inventory dropped 15.5%.

Advanced inventory
I don't stop my checkup there, because the type of inventory can matter even more than the overall quantity. There's even one type of inventory bulge we sometimes like to see. You can check for it by examining the quarterly filings to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

What's going on with the inventory at Trex? I chart the details below for both quarterly and 12-month periods.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

Source: S&P Capital IQ. Data is current as of latest fully reported quarter. Dollar amounts in millions. FQ = fiscal quarter.

Let's dig into the inventory specifics. On a trailing-12-month basis, raw materials inventory was the fastest-growing segment, up 7.6%. On a sequential-quarter basis, raw materials inventory was also the fastest-growing segment, up 6.6%. Trex seems to be handling inventory well enough, but the individual segments don't provide a clear signal. Trex may display positive inventory divergence, suggesting that management sees increased demand on the horizon.

Foolish bottom line
When you're doing your research, remember that aggregate numbers such as inventory balances often mask situations that are more complex than they appear. Even the detailed numbers don't give us the final word. When in doubt, listen to the conference call, or contact investor relations. What at first looks like a problem may actually signal a stock that will provide the market's best returns. And what might look hunky-dory at first glance could actually be warning you to cut your losses before the rest of the Street wises up.

I run these quick inventory checks every quarter. To stay on top of inventory and other tell-tale metrics at your favorite companies, add them to your free watchlist, and we'll deliver our latest coverage right to your inbox.

• Add Trex �to My Watchlist.

Advisor CRM Junxure to Be Available in Web Version in 2012

Junxure, the flagship product from CRM Software, a software development firm based in Palm Beach Gardens, Fla., announced Monday that beginning next year it will make its CRM product available on the cloud. Greg Friedman, president of Junxure and a principal at the wealth management firm Private Ocean, wouldn’t divulge exactly when in 2012 that a Web-based version of Junxure will become available, citing “our reputation for underpromising and over-delivering.”

Stressing that the firm, which has 9,000 users for Junxure, is “categorically not abandoning the desktop,” and that “we’ll continue to develop both [versions] aggressively,” Friedman (left) said the move to the cloud fits squarely within the 10-year-old firm’s core strategy of providing “choice and control” to its users.

“Many firms want desktop and want to control their data,” he said in a Tuesday interview, ticking off some of the advantages of a desktop product—like speed. Is it more secure as well? “Security is always an issue,” he said, but argued that it’s "multifaceted." For instance, "some people will say 'A hosted solution is more secure,' but who’s more likely to get hacked? Salesforce or Microsoft or your little advisory firm in Poughkeepsie?” though Friedman was quick to point out that most data centers are “way more safe than the average advisory firm.”

Despite desktop’s benefits, Friedman knows that some users might very well want a Web-based version, and providing one also will help Junxure “expand our reach in our market; that’s where the future is.” In fact, the current version of Junxure can easily be placed by users on a “private” cloud now if they so choose, he said, noting that there are many consulting firms that can handle that process for Junxure users, including “two firms that we make referrals to that can do that for you right now.”

The cloud and desktop versions will not be identical. The first release of the Web version of Junxure will contain the “core functionality” of the desktop version, Friedman said, including some key “integrations” that many users require, but with a more Web-friendly user interface that is currently being designed.

Read Olivia Mellan's feature article from Investment Advisor on issues involved in advisory firm mergers, including insights on Friedman's Private Ocean venture.

The shrinking private equity world

NEW YORK (CNNMoney) -- The notoriously private private equity industry can't escape the glare of the spotlight these days, but the more immediate issue facing the industry is a lack of funding.

In 2011, U.S. firms invested just $32.1 billion in private equity, down nearly 79% from the industry's peak year in 2007.

And 2012 is expected to be even worse.

"It's taking a lot longer to raise funds," said Jeffrey Bunder, head of Ernst & Young's global private equity practice. "The process isn't like it used to be. They're having to demonstrate why they deserve the money."

Pensions and endowments, which make up the bulk of private equity investors, have been casting a wary eye on the industry because of the combination of high fees, lackluster returns and generally erratic returns.

Keith Garrison, the director of alternative assets for Texas Christian University's $1.1 billion endowment, said he's been more cautious about investing in buyout funds since the financial crisis.

"The returns have been more drawn out than you would have originally anticipated," said Garrison. "We need to manage liquidity. I'm not the only endowment closely watching its allocation to private equity."

Romney made $42.7 million in 2 years

Unlike hedge funds or other assets that offer quarterly returns, private equity funds return cash to investors only when the companies they're invested in are sold, go public or add new debt.

Part of the problem for the industry is that since the financial crisis, private equity firms have had a hard time selling their acquired companies, as mergers and acquisitions and initial public offering activity slowed down.

In fact, current returns are at their worst level since at least 1990, when the California Public Employees' Retirement System first started tracking the data.

Private equity funds raised in 2006 have returned just 4.2% to investors, according to the pension fund's website. Funds raised in prior years generated double digit returns. Similar to hedge funds, managers of private equity firms generally earn 2% fees on all funds they manage and 20% of all profits.

Meanwhile, the same firms are struggling to find companies to take private that could generate returns. The industry is sitting on roughly $400 billion of cash globally. Private equity managers haven't found the right companies to put this so-called dry powder in.

All but the best performing firms are expected to shrink, as investors put a smaller amount of their portfolio into private equity firms.

Firms that have raised between $1 billion and $5 billion with so-so performance will have the most trouble raising new funds.

Most of the largest funds that already have a spot in a public pension such as CALPERs, which manages $219 billion of California employees' retirement funds, will keep some money from these funds. CALPERs and its larger pension peers spend a lot time and a lot of money vetting new investments, so earning that initial spot in a pension portfolio helps keep a private equity firm alive in all but situations of extremely poor performance.

As U.S. investors scale back their private equity investments, the industry is increasingly looking to sovereign wealth funds and wealthy families in Asia and Latin America for new money.

"Funds are spending a lot of time overseas telling their story and thinking there's an appetite there," said Ernst & Young's Bunder. "That money doesn't come in overnight though."

For many private equity funds, that extended fundraising cycle could strike a fatal blow.  

The January Effect In High Yield Bonds

With markets around the world off to strong starts in 2012, many market pundits have made mention of the January effect. This phenomenon states that tax-selling pressure at the end of the previous calendar year drives down equity prices, leading to outsized gains in the following January. This anomaly has become such a widespread legend in financial markets that efficient market proponents would expect that this arbitrage would be priced out of the market. After analyzing the latest historical returns, it does appear that this calendar effect in domestic equity markets has been muted in recent periods. For both the trailing five and ten years, January has been the second to worst month in the sample for the S&P 500 (SPY).

Click to enlarge:

Other market prognosticators conjecture that the January effect in equities is not an absolute, but rather that it signals relative outperformance of small-cap equities versus large-cap equities. To observe this relative performance of small caps and large caps, the calendar effect of the S&P 500, as a proxy for large caps, and the Russell 2000 (IWM), as a proxy for small caps, was examined. Over the last ten years, the difference between small cap returns and large cap returns in January finished only in the middle of the pack of monthly returns (ranked ascending by outperformance of S&P).

Click to enlarge:

It does not appear that a calendar effect has been a bankable trade in the U.S. stock market. However, in another domestic market, the January effect remains substantially positive - high yield corporate bonds. Examining the Barclays U.S. Corporate High Yield Index, January returns have far outpaced all other months. From 1984-2011, returns in January have averaged 2.08%, an annualized return of 28%. These figures far surpass the second most positive month, December, which has seen an average monthly return of 1.44% or 18.7% annualized. December and January have also seen lower variability of returns over the life of this high yield index, presenting the rare opportunity to achieve abnormal returns on average for less than market risk.

Click to enlarge:

Examining January returns over the sample period, compared to a time series of the average returns of all other months demonstrates that the January outperformance is statistically significant. The January effect is also present when subdividing the high yield index by its ratings strata. The January effect strengthens as we go down the ratings spectrum.

As we move quickly through the early part of 2012, it may be time to re-think your allocation to high yield bonds and closed-end funds holding high yield bonds. Nearly half of the annual high yield return has been earned on average in December thru February. In single-Bs (52%) and triple-Cs (61%), an even greater proportion of the total return is captured in these months. There seems to be a seasonality to high yield investments that is not present in the investment grade universe or in equities, and grows stronger as we move down the ratings spectrum. My speculation is that institutional investors' desire to class up their portfolios at year-end by reducing weights to speculative grade credits could be contributing to this phenomenon. Insurance companies, who are large holders of corporate bonds, face increasing capital ratios as they move down the ratings spectrum (4.6% for BBs, 9% for Bs, 17% for CCCs), and may desire to reduce allocations to high yield bonds to improve year-end stautory risk-based capital ratios.

Looking at a sample of quarterly price returns of some of the larger high yield bond closed-end funds with a minimum ten year history, AWF, DHF, HIX, HYB, HYF, VLT, demonstrates that the first quarter typically outperforms the second quarter.

Click to enlarge:

The difference in first quarter average performance of 3% and second quarter average performance of 0.2% is greater than the typical quarterly distribution. This effect is not simply a function of the macro backdrop as the S&P 500 (SPY) outperformed on average in the second quarter versus the first quarter for the same sample period.

It appears that the January effect or seasonality effect is still present in high yield bonds, and you should consider re-weighting your asset allocation accordingly. If you are bullish on the market, consider swapping into equities in the near-term. If you are bearish, consider increasing your allocation to cash or investment grade bonds. Against both asset classes, high yield bonds seem to richen from December to February on a relative basis versus asset classes where the January effect is no longer pronounced.

Disclosure: I am long SPY.

Update: Close Out VMW Short Trade

Yesterday, we took initial profits on our short calls trade on VMWare (NYSE: VMW). Today, VMW is down another 1.4% as of this writing, and we are taking the rest of the profits, and thereby closing the trade. The profits accumulated quickly in this trade and we are happy to take the risk off the table and look elsewhere for new high probability setups.

The bearish candle on June 1 was our trigger for the short, but the thing to keep in mind is that the cloud computing space is still very hot and could move much higher. Just the other day Apple (NASDAQ: AAPL), announced its consumer cloud services. As such, we didn’t feel comfortable holding this short position for much longer than a few days.

6 Recession-Proof Dividend Stocks

Conservative investors will have very limited investment alternatives for another three years. Federal Reserve disclosed that the ultra low interest rate policy will be kept until the end of 2014. Fed isn't satisfied about the economy's direction and sees recession or deflation in the cards. As a result of Fed's policies long-term Treasuries are in a Fed-induced bubble. Long-term investors probably won't be able to beat inflation over the next 10 years. We think relatively stable, recession-proof dividend stocks are viable alternatives to long-term Treasuries. The six stocks we picked usually perform much better than the rest of the market during tough times because they derive a large portion of their revenues oversees. Consumers also don't cut their demand for the products offered by these companies materially. Here are the six recession-proof stocks you should consider for your portfolio:

McDonald's Corporation (MCD) has a 2.80% dividend yield. The international fast food company has also had strong performance this year. It has a P/E ratio of 19.45 and a market cap of $101.48 billion. So far this year, MCD has returned 0.39%. Its closest competitor is YUM Brands, Inc. (YUM), the company that owns KFC, Pizza Hut and Taco Bell. YUM's market cap is far less than MCD's (at $28.77 billion) but it is priced much higher, with a P/E ratio of 24.51.

The Coca-Cola Company (KO) has been able to increase its dividends for the 49 years. It also has consistently strong growth. KO returned lost -2.44% since the beginning of the year. KO has a market cap of $154.47 billion and a P/E ratio of 12.50. It also offers a dividend yield of 2.80%, which is slightly lower than the dividend of 3.10% of its nearest competitor, Pepsico, Inc. (PEP). The difference is that KO has a larger market cap ($154.47 billion vs. PEP's $104.00 billion). It also has greater quarterly growth (45.40% vs. PEP's 13.30%). Warren Buffett is famously bullish about KO. He keeps almost 23% of Berkshire Hathaway's $59.13 billion portfolio invested in the soft drink company.

The Procter & Gamble Company (PG) has a dividend yield of 3.30% after increasing it consistently since 2002. It also has a market cap of $178.29 billion and a P/E ratio of 16.46. One of its closest competitors is Johnson & Johnson (JNJ) with a market cap of $179.51 billion. PG has greater quarterly growth, boasting an increase of 8.90% compared to JNJ's 6.80% but both are great companies.

Johnson & Johnson is PG's greatest competitor. The pair has similar market caps as noted above, but JNJ has a higher dividend yield (3.50%) and a higher operating income (25.42% versus PG's 18.55%). Both companies are solid, recession-proof, dividend-yielding investments. Some investors, like the billionaires Warren Buffett and Ken Fisher, own stakes in both companies.

Philip Morris International, Inc. (PM) offers an impressive dividend yield of 4.20%. It has a market cap of $132.67 billion, making it the largest tobacco company in the country - British American Tobacco Plc (BTI) is second with an $92.34 billion market cap. Compared to BTI, PM has greater quarterly growth (26.40% vs. BTI's 1.90%). It also has a higher operating margin and more net income.

Pfizer Inc. (PFE) has a $166.27 billion market cap and offers a 4.10% dividend yield. Its closest competitor by market cap is Novartis (NVS), which has a $132.54 billion market cap. PFE has a higher operating margin than its rival (27.79% vs. NVS's 22.84%), as well as greater revenues ($68.78 billion vs. NVS's $58.84 billion).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Netflix starts to rebound from Qwikster blunder

NEW YORK (CNNMoney) -- Netflix said Wednesday it began to add customers again last quarter, after a series of blunders damaged its sterling reputation with consumers and investors.

The streaming video and DVD-by-mail company said it gained a net 610,000 U.S. customers in the fourth quarter of 2011, including 220,000 streaming customers.

Netflix now has 24.4 million total customers, close to the 24.6 million it had before it angered subscribers with a 60% price hike in July, and then announced the separation of its DVD and streaming services in September. The company eventually canned the "Qwikster" plans, but not before 800,000 customers had fled Netflix.

Netflix appears to have recovered from the PR nightmare. The company said it began adding more streaming video service customers by December. Not only did last month's customer additions far outpace the company's expectations, but far fewer customers cancelled their service. Also, fewer migrated to DVD-only plans, which are more cost-intensive for the company.

Netflix said it is "tracking close" to 1.7 million net streaming customer additions for the current quarter, far more than the company had previously expected. That will also help the company keep costs under control, and profit margins will be higher than previously forecast.

Netflix CEO: 'We got overconfident'

Shares of Netflix (NFLX) rose 11% after hours, trading above $100. The company's stock had traded as high as $300 a share last summer, before its series of debacles sent shares falling into a tailspin.

Though the company appears to have regained the faith of its customers, serious business concerns remain. Prices of licensing new content continue to grow, weighing on profits. And the company is losing some prime content, including that of cable company Starz, which featured popular Disney (DIS, Fortune 500) titles like "Toy Story 3" and "Tangled," which currently make up about 2% of Netflix's U.S. viewing.

But Netflix responded that the quantity and quality of its streaming video selection continues to improve, and its competition remains weak. It estimated that viewing hours on Amazon's (AMZN, Fortune 500) Instant Video service and Hulu Plus each represented about 10% of Netflix's service.

The company has also made the bold bet of competing directly with cable companies by producing its own shows. Its first, "Lilyhammer," will debut next month. "House of Cards," featuring Kevin Spacey, will run in the fourth quarter, and the eagerly anticipated fourth season of "Arrested Development" will run exclusively on Netflix in 2013.

The Los Gatos, Calif.-based company said its net income fell to $40.7 million, or 76 cents per share, down 13.5% from a year earlier.

Analysts polled by Thomson Reuters forecasted earnings of 55 cents per share.

Sales rose 47% to $875.6 million, topping analysts' forecasts of $858 million.

As more DVD members quit or switch to streaming, Netflix anticipates that its overall sales this quarter will roughly match that of last quarter. That forecast still outpaced analysts' median estimates by about $30 million.

As Netflix previously announced, it expects to incur losses in each quarter of 2012, after it launched its service in the United Kingdom and Ireland earlier this month. The company believes it will lose between $9 million and $27 million this quarter, which skews slightly worse than analysts' median forecast of a $16.5 million loss.

But the company also said that those losses will get smaller as the year goes on. 

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Two-Way Traffic Ahead for the Markets?

After what has likely been a painfully long stretch of one-way road, it appears that our furry friends may have spotted the one road sign they've been aching to find on their journey: Two-Way Traffic Ahead. As we've been saying for many moons now, the current one-way market is indeed rare. This type of joyride to the upside has definitely happened before, but it has also clearly confounded anyone expecting to see a more traditional two-steps-forward-and-one-step-back type of bull market environment.

While we are not ready to commit to the idea that the top is in and that the bears will control the game going forward, we will suggest that the current geopolitical issues in places like Libya, Bahrain, Tunisia, Morocco and Yemen are clearly enough to kick-start a consolidation/corrective/sloppy phase in which the market goes both ways for a while.

The question I was asked on a fairly long lift-ride at Loveland Ski Resort over the weekend was a good one: Why does Libya matter when Egypt didn't? The answer is simple - oil. Although the world has plenty of oil relative to demand right now, the bottom line in the market is traders are now applying a "risk premium" to crude contracts. And with that premium pushing Texas Tea to uncomfortable levels, the worry is that an oil spike/shock, when coupled with the tightening measures being applied in China, could push the global economy back into recession.

This is the way the oil game works. As the fear of what could happen rises, traders bid up futures prices. At some point in this process the traditional supply/demand factors do come back into play. But until then, it's all about the news.

To put the oil situation into perspective, I read over the weekend that Libya, which is something like the seventh largest producer in OPEC, has capacity for something like 1.5 million barrels of oil a day. And given that Saudi Arabia currently has excess capacity of around 3.5 million barrels a day, what happens in Libya really doesn't matter much from a global supply standpoint.

However, the big fear is that the rage against the machine that is occurring in the Middle East will spread to places that DO matter such as Iran or even Saudi Arabia. Although wholesale changes in the Middle East aren't likely, the degree of success protesters enjoyed in Egypt does allow the mind to wander a bit in the "what could happen" category.

So, while we are NOT in the business of predicting what will come next in the market. It is a safe bet that the bears are going to get back in the game today. European markets were down approximately 1% - 1.5% on Monday and are down again today. As such, the U.S. markets have some catching up to the downside to do.

Is this the time to sell everything and head for the hills? Given the strength we've seen in the market recently, we'll guess that the answer to that question is no. However, we can expect the dip-buyers to "stand aside" for a bit and wait for the market to come in a little. Normally, the market tends to pull back to the tune of 3% to 5% every once in a while in order to keep everybody honest. And with the sign suggesting that there is two-way traffic ahead, this is probably what we're in for.

Job Supply Matters, Even During Recessions

"Traditionally, many economists have been leery of prolonged unemployment benefits because they can reduce the incentive to seek work. But that should not be a concern now because jobs remain so scarce, said Lawrence Katz, a labor economist at Harvard." as quoted by the New York Times. (See also here for the same claim)

What is the basis for this claim? I'm not sure, but Professor Shimer kindly pointed me to an article about unemployment duration in Pittsburgh 1980-85. Unemployment rates got quite high in Pittsburgh in those days, reaching 16 percent at one point, and staying over 10 percent for two and a half years. The chart below shows some of the results. It graphs weeks from unemployment benefit exhaustion against the fraction of unemployment people either finding a new job or being recalled to a previous job in that week. "Exhaustion" refers to the time when benefits cease being paid to the unemployed person, regardless of whether they have found a job.



Almost no one started working during the 2-3 weeks prior to the exhaustion of their unemployment benefits (weeks "-3" and "-2" in the chart). Miraculously, more than one quarter started work a week later (19% started a new job, 10% returned to a previous job). Economists agree that a huge reason for this behavior is that people are more willing to remain unemployed when unemployment itself generates a paycheck. (The job they take may not be great, but the data show that often there is a job to take).

If incentives mattered in Pittsburgh in the early 1980s, why wouldn't they matter in the United States today? Or why did employment increase almost 1,000,000 last summer?

Clinical Data and Forest Labs Agree to Split the Risk

by Stephen D. Simpson, CFA

The tug of war between Clinical Data (CLDA) bulls and bears has ended in what has to be called a draw. Flying in the face of the bear argument that Clinical Data's recently-approved depression drug Viibryd is little more than a me-too drug with scant prospects, Forest Labs (FRX), a company that knows more than a little about depression drugs, has agreed to purchase the company for $30 a share in cash and up to $6 more in contingent payments.

Of course, bulls should not be limbering up for an unbridled victory lap either. At $30, the guaranteed part of Forest's bid represents a take-under to the tune of nearly $4 per share. Moreover, if Viibryd really takes the market by storm and becomes a $2 billion or even $3 billion a-year drug, this deal is hardly full and fair compensation.

The Structure Of The Deal

Assuming that 79% of shareholders agree to the deal, Clinical Data owners get $30 free and clear. Forest went to some lengths in the press release to make that sound like a premium offer, pointing to a slightly convoluted volume-adjusted pricing metric that makes this deal represent a nearly 7% premium to Clinical Data's post-approval trading. The reality, though, is that bulls overshot the mark when they bid this stock up in anticipation of a buyout.

Not unlike the recently-announced deal between Sanofi-Aventis (SNY) and Genzyme (GENZ), the contingent compensation part of the deal is fairly significant, and could ultimately represent close to 17% of the deal value. Here's how the contingent payments break out according to the press release:

• $1.00 per share if Viibryd produces a 12-month run rate of sales of $800 million within 5 years
• $2.00 per share if sales meet or exceed $1.1 billion within 6 years
• $3.00 per share if sales meet or exceed $1.5 billion in 7 years

The Drug In Question

Although Clinical Data does have one other drug in late-stage testing (Stedivaze for cardiac imaging), this deal is really all about Viibryd. Also known as vilazodone (the chemical name), Viibryd is a novel dual-mechanism anti-depressant that the FDA approved as a treatment for major depressive disorder. Although the data concerning Viibryd's efficacy does not jump off the page, depression is an idiosyncratic disease and many patients find that they have to try multiple drugs before finding one that works. Consequently, Viibryd may not achieve all that much success as a first-line therapy, but there could be significant potential as a follow-on treatment.

Moreover, Viibryd appears to have an attractive side-effect profile. Clinical studies showed no weight gain and low sexual side-effects - and those are major issues with many depression drugs, including Forest's own drug Lexapro. On the other hand, nausea and diarrhea were quite common, and one could argue that the onset of diarrhea largely makes the "sexual side-effect" question moot. To be fair, though, diarrhea and nausea tapered off significantly after a couple of weeks, accounting for relatively few drug discontinuations in Phase 3 studies.

Can Forest Make This Work?

It is hard to think of too many better custodians for Viibryd than Forest Labs. Forest has done quite well for itself with the anti-depressants Celexa and Lexapro, selling nearly $587 million of the latter in the most-recent quarter. Unfortunately, Lexapro goes off-patent soon and the recent clinical failure of levomilnacipran threatened to leave the company with an empty cupboard in this market.

It is true that even a large pharmaceutical company cannot force-feed a drug to a market that does not want it (witness the difficulties and controversy surrounding Novartis (NVS) and its sales of Vanda Pharmaceuticals' (VNDA) schizophrenia treatment Fanapt). That said, Forest Labs has an experienced sales force, and the company needs this drug to be a winner - all of which suggests that if Forest can't make this drug a success, nobody could have.

Nothing Promised, But Little Expected

For Clinical Data shareholders, this is probably the best deal they can expect. It seems unlikely that Pfizer (PFE) or Lilly (LLY) would want to get into a bidding-war here. It is also an interesting lesson for biotech investors in general - as companies like Clinical Data, Savient (SVNT), and Vanda get approval despite a newly strict FDA, and then find that partners are in no rush to pay up for rights to the drugs. Perhaps it's lucky for the likes of Human Genome Sciences (HGSI) and Seattle Genetics (SGEN), then, that they already have marketing deals in place, though the market expectations of those drugs are far more positive.

Forest Labs is taking on some significant dilution to do this deal and does not expect it will be accretive to earnings until 2014, even though it intends to launch the drug in the second half of this year. The good news for Forest shareholders, though, is that so little is presently expected of this company that it does not seem that any dilution should hurt the valuation all that much. In fact, the stock seems to be discounting a nearly two-thirds drop in free cash flow by 2014. If Forest Labs can turn Viibryd into only half as successful a drug as Lexapro, that represents a pretty appealing upside to these shares.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Cheap Stock Alert – SIRI Review

Sirius XM Radio Inc. (NASDAQ: SIRI) stock slipped this morning despite a recent rating upgrade from Morgan Stanley from Non-rated to Overweight. Its price target has been set at $2 price. The research firm also stated that the stock has potential for return of capital in the 2012 and 2013 time period. The company is also likely to attract more institutional investment, which may help in increasing the stock price.

The research report also stated that the company is expected to face increase in its market costs. The note said, �Particularly as SIRI faces competition from internet-based services enabled by wireless device proliferation.�

Sirius is engaged in the business of broadcasting music, news, talk shows and sports in the United States. The company provides its services for a subscription fee. It also streams some of its content over the internet. The company has four in-orbit satellites and 125 terrestrial repeaters. The company has recently submitted a certificate of ownership for the completion of its merger with XM Satellite Radio. The company had been working towards this merger since 2008.

SIRI stock opened at $1.76 and touched the high of $1.80, which is also its 52 weeks high. The stock�s lowest price in today�s session is $1.75. The company stock�s beta is 1.95. The company stock has traded in the range of $0.79 and $1.80 during the past 52 weeks. The company�s market cap is $6.95 billion and its P/E ratio is 75.26.

SIRI had reported its revenue for the quarter ended on Sep. 30, 2010, at $717.549 million. Its gross was stated at $351.865 million while its net income for the quarter was reported at $67.371 million. SIRI had stated its total current assets at $778.615 million whereas its total assets were valued at $7231.785 million. SIRI had total liabilities worth $6962.693 million at the end of the Sep. 30, 2010, quarter.

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Monday Options Update: RIMM, CAT, MGM, F, SLM, FRX & FXI

Research in Motion Limited (RIMM) – Blackberry maker, Research in Motion, attracted bearish options strategists even though the firm’s target share price was upped to $100.00 this morning from $95.00 at Canaccord Adams. RIMM opened the session higher, but slipped slightly in afternoon trading by 0.05% to $70.85. One bearish tactic employed today was the use of a plain-vanilla put spread in the March contract. The trader responsible for the transaction purchased 4,400 puts at the March $65 strike for a premium of $0.54 apiece and sold the same number of puts at the lower March $60 strike for $0.20 each. The net cost of the spread amounts to $0.34 per contract. Maximum potential profits of $4.66 per contract are available to the investor if RIMM’s share price slumps 15.30% beneath the current value to $60.00 by expiration. We note that the mobile device manufacturer’s shares last traded below $60.00 on December 4, 2009. The bearish risk reversal is another pessimistic tactic utilized today. One trader sold 5,000 calls at the April $75 strike for a premium of $2.66 each in order to purchase 5,000 puts at the lower April $70 strike for $3.80 apiece. The net cost of the reversal play amounts to $1.14 per contract. The investor stands ready to accrue profits to the downside if shares of the underlying stock trade beneath the effective breakeven point at $68.86 by expiration in April.

Caterpillar, Inc. (CAT) – February marked the seventh consecutive month of manufacturing expansion in the United States; this fact, coupled with today’s jump in equities’ prices, inspired bullish options trading on machine-maker, Caterpillar. CAT’s shares rallied 1.50% during the session to $57.92 after its earnings forecast through the year 2012 were increased by analysts at Morgan Stanley. MS maintains an ‘overweight’ rating on CAT and a $70 share price target, at present. Bullish options activity appeared on the put side of the field where one investor established a credit spread. The trader sold roughly 16,300 puts at the April $55 strike for a premium of $1.38 apiece, and purchased the same number of puts at the lower April $50 strike for $0.47 each. The investor pockets a net credit of $0.91 per contract, and keeps the full amount as long as Caterpillar’s share price remains above $55.00 through expiration day in April. The parameters of the credit spread dictate maximum potential loss exposure of $4.09 per contract should shares of the underlying stock decline 13.70% from the current price to $50.00 ahead of expiration.

MGM Mirage, Inc. (MGM) – Options traders coveted call options on casino and resort operator, MGM Mirage, today as shares of the underlying stock increased 1.50% to $10.70. Investors placed nearer-term bullish bets at the April $14 strike where 2,200 calls were picked up for an average premium of $0.09 per contract. Call-buyers paid nine pennies per contract to position for a potential hail-Mary share price rally by expiration. Traders accrue profits only if MGM’s shares surge 31% to breach the breakeven point at $14.09 by expiration day in April. Bullish activity in long-dated options caught our eye, as well. It looks like one trader purchased 18,800 calls at the January 2012 $20 strike for a premium of $1.65 apiece. The investor holding these contracts is positioned to profit if MGM’s share price jumps a staggering 101.60% to surpass the breakeven point at $21.65 by expiration day in January 2012.

Ford Motor Co. (F) – Shares of the automaker jumped 5% during the session to a new 52-week high of $12.34 after increasing its production target in Europe for the first-quarter on higher-than-expected sales of its Fiesta and Ka models. Bullish options trading ensued during the session as some individuals ramped up optimistic positions on the stock. One investor rolled a long call position to a higher strike price and augmented the size of the position to extend bullish sentiment to the April contract. The trader sold 5,000 now in-the-money calls at the March $12 strike for a premium of $0.40 apiece in order to buy 10,000 calls at the higher April $13 strike for an average premium of $0.25 each. The net cost of the transaction amounts to $0.10 per contract on account of the ratio nature of the combination and positions the investor to amass profits above a breakeven price of $13.10 by expiration in April. Traders exchanged more than 144,000 option contracts on Ford Motor Company in the first half of the trading day.

SLM Corp. (SLM) – Bearish investors bombarded the student loan facilitator, familiarly known as Sallie Mae, today as shares slipped 2% lower to stand at $10.95 each. April contract put options are in demand, with the current day’s volume at the April $9 and $10 strikes exceeding existing open interest levels at those strikes. Investors purchased nearly 8,000 puts at the April $9 strike for an average premium of $0.19 apiece. Put-buyers are perhaps anticipating continued bearish movement in the price of the underlying stock through expiration next month. The puts yield profits to the downside if SLM shares plummet at least 19.5% to breach the breakeven price of $8.81 by expiration. Options traders also picked up about 3,500 puts at the April $10 strike for a premium of $0.33 each. These contracts yield profits beneath a breakeven share price of $8.67 through expiration in April.

Forest Laboratories, Inc. (FRX) – Bullish investors dominated options trading activity on the pharmaceuticals firm today with shares of the underlying stock up 1% to $30.18. FRX shares are up perhaps on news the Food and Drug Administration has rescheduled a meeting to review the firm’s Daxas lung treatment on April 7, 2010. Optimistic traders initiated bullish positions on FRX in the April contract to prepare for potential share price improvement following the FDA meeting in April. Investors purchased 3,600 in-the-money calls at the April $30 strike for an average premium of $1.35 apiece. Forest’s shares must trade above the breakeven price of $31.35 by April expiration for in-the-money call buyers to amass profits. Bulls targeted the higher April $32.5 strike as well, buying 4,100 call options for an average premium of $0.36 each. Investors long these contracts profit if shares of the underlying rally at least 8.90% from the current value of the stock to breach the breakeven point at $32.86 by expiration day. Options implied volatility is up sharply by 32.80% to 29.25% on FRX due to increased demand for options on the stock and greater uncertainty ahead of the FDA meeting next month.

iShares FTSE/Xinhua China 25 Index Fund (FXI) – Shares of the China exchange-traded fund, which invests in twenty-five of the largest and most liquid Chinese companies, are up 2.75% to $40.68. One options transaction on the fund, however, suggests the current rally may be short-lived. The so-called bearish risk reversal enacted on the FXI indicates one investor expects shares of the underlying fund to fall by April expiration. The investor sold 8,100 calls at the April $44 strike for an average premium of $0.45 apiece in order to buy the same number of put options at the lower April $36 strike for $0.46 each. The net cost of the reversal play amounts to just one penny per contract. Perhaps the trader is long shares of the underlying fund and is securing cheap downside protection in case the price per share declines ahead of April expiration. The short call position used to finance the put purchase suggests the trader is willing to have shares called from him if the FXI’s price per share exceeds $44.00 ahead of expiration day next month.

Should You Buy Companies You Know and Love? Evaluating Apple, Amazon and Netflix

Peter Lynch's old adage advises average Joe stockpickers to "invest in what you know." If you eat Big Macs, buy stock in McDonald's (MCD). If you binge on Diet Coke (CCE), load up on the company's shares. Over the years, this strategy could have paid off. Had you applied this thinking to three of the past year's biggest gainers -- Apple (AAPL), Amazon.com (AMZN) and Netflix (NFLX) -- you would have made out quite nicely.

• AAPL shares skyrocketed from a February 23, 2010, closing price of $204.62 to a February 22, 2011, close of $338.61.
• AMZN stock shot up from a $118.40 close on February 23, 2010, to a February 22, 2011, close of $180.42.
• NFLX shares more than tripled from a closing price of $66.05 on February 23, 2010, to end the day on February 22, 2011, at $221.60.

If you had invested $30,000 -- $10,000 in each of these stocks -- you could have sold for a $35,336 profit on February 22, 2011.

Can AAPL, AMZN, and NFLX Keep Delivering?

My mailman could be the poster child for Lynch's strategy. The cart he pushes around my Santa Monica neighborhood is stacked with boxes from Amazon.com. He drops at least one of them at my doorstep per week. His bag overflows with those ubiquitous red Netflix movie envelopes. He picks up no less than three a day from my 8-unit building's outgoing mailbox. And he stops every once in a while to send a text or take a call on his iPhone, while cranking out the jams via a separate iPod.

A mailcarrier friend of mine told me several years ago that she took all of her vacation time just prior to election time to avoid toting a bag made heavier by the informational booklets outlining races and initiatives. I should give her a call -- one iPhone to another -- to see if that plan even makes sense anymore given the daily Netflix and Amazon load she simply didn't carry 10 years ago.

Apple, Amazon and Netflix have become more than omnipresent. In their own way, each company, through innovative products and services and imaginative approaches to their markets, enjoys cultural icon status, at least for the time being. It's easy to look back and wish you had gotten into these high-fliers a year ago. The bigger question, however, surrounds whether or not you should get in now.

Potential AAPL, AMZN, and NFLX Positions

Simply put, given the recent market downturn, I would be a buyer of AAPL stock and call options, but, even at these somewhat depressed prices, AMZN and NFLX concern me in the near- to mid-term. I don't live and die by P/E ratios, but sometimes they prove instructive. As of February 23rd, AAPL's P/E stands at 19.04. AMZN and NFLX sport relatively high P/E's at 69.96 and 71.32, respectively, even amidst a significant correction in the share price of both stocks. When deciding how to position myself in these companies, I simply consider the unknowns surrounding each.

AAPL Unknowns

I believe investors have come to terms with the major unknown surrounding AAPL. While the shares will certainly take some hits on future Steve Jobs news, I think any slipup proves temporary. Rumor and innuendo ultimately cannot take AAPL down. When the dust settles, reality comes through with analysts reiterating the company's seemingly unstoppable growth. AAPL is dirt cheap no matter how you slice it. Getting AAPL shares in the $336 to $350-something range represents a potential bargain basement long-view windfall.

AMZN and NFLX Uncertainty

The battle between AMZN and NFLX intrigues me. As somebody who uses Amazon.com frequently, but has subscribed to NFLX only on and off, I am partial to AMZN. This bias, however, is telling. One of the biggest criticisms of NFLX is that people view it as a luxury, an additional expense to cable or satellite TV. They pop in and out of free trial periods and may not be willing to stick around for the long-term.

Amazon, meantime, has an amazing platform to compete not only with NFLX, but the likes of Wal-Mart (WMT), Target (TGT), and other retailers. The Wall Street Journal reports that media sales (e.g., books and DVDs) accounted for less than half of AMZN's revenue in 2010. AMZN's price advantages over brick-and-mortar retailers gives it an amazing edge. People can buy staples and other products from AMZN with consistency. Now that AMZN has tossed a salvo at NFLX by offering online streaming to Amazon Prime customers, it has the opportunity to strengthen not only revenues, but brand and customer loyalty. AMZN can parlay a consumer's desire to watch a movie for "free" into a $79 annual Prime membership. While the person streams the movie, AMZN can target them with products and other site features designed to cement loyalty, such as "Subscribe and Save." NFLX simply does not have this type of platform, nor do I think it can make the investment to develop one or innovate itself into a better competitive position versus AMZN.

While I am more bullish on AMZN's long-term prospects than NFLX's, AMZN's recent investments in the business could continue to drag on the bottom line and negatively impact share price. Additionally, AMZN's foray into online streaming could backfire because of competition from NFLX, Coinstar (CSTR), and others. AMZN could face the same cost challenges for acquiring content that worry investors with regards to NFLX and other "streamers."

At this point, I would not open a position in NFLX, even with the stock's recent plummet. Barring amazing innovation, I see NFLX hitting a wall. I don't see channels for long-term growth potential, at least not enough growth to justify the stock's valuation, as evident.

If I were to play AMZN today, I would not buy the shares. I would look for short-term swing trades on volatility using ATM and slightly OTM call and put options. Over the longer-term, however, I believe a potentially successful strategy involves selling AMZN put options. I would look at OTM puts between 1 and 2 months out with attractive premiums, but only at a price I would be happy owning the shares at. Of course, different investors have different answers to this question. I would be comfortable selling AMZN March $170 puts on the recent weakness at around $3.10. If the put expires worthless, you keep $310 per contract sold. If the stock drops below $1.70, particularly to the put buyers' breakeven of $166.90, you run the risk of having to buy 100 shares of AMZN for $170 each for each put option exercised. I would look to replicate this strategy at different strikes with different near-term expirations for the foreseeable future, moving up the strikes as my confidence in the shares increases.


Disclosure: I am long AAPL, CSTR.

Australian shares sink as miners drag

SYDNEY (MarketWatch) � Australian shares sank on Wednesday as a pick-up in Chinese manufacturing activity failed to offset a string of disappointing U.S. economic reports, and investors remained cautious ahead of earnings season.

The benchmark S&P/ASX 200 AU:XJO �lost 0.9%, or 37 points, to end the session at 4,225.70.

Click to Play Home prices, consumer confidence drop

U.S. home prices fell again in November, while January's consumer confidence gave back some of its recent gains.

The market reacted to a negative lead from Wall Street after US consumer confidence, data showing slowing business activity and a fall in home prices troubled investors. Read more about the U.S. session.

�The U.S. data last night let people know the recovery is not [progressing] as quickly as we thought,� Lucinda Chan, investment adviser at Macquarie Private Wealth said.

�There is also a bit of caution with reporting season coming up and some profit-taking after a strong start to the year,� she said.

Data from China showed a mixed picture of manufacturing activity in the world�s second-largest economy, as HSBC�s Chinese manufacturing survey remained stuck in contraction in January, while the government version indicated the sector is now growing.

Macquarie Private Wealth�s Chan said the China readings �weren�t too bad, but the U.S. data overshadowed them and resulted in weaker commodity prices, which hit our market pretty badly today.�

Of large-cap miners, BHP Billiton Ltd.AU:BHP � BHP �lost 1.5% after the firm said it would cut up to 155 workers from its nickel division due to the impact of a strong Australian dollar.

Fortescue Metals Group Ltd. AU:FMG ��dropped 1.4% and Rio Tinto Ltd. AU:RIO �RIO �lost 0.6%.

Shares in Energy Resources of Australia Ltd. AU:ERA � EGRAF �slumped 13.6% after the uranium miner swung to a sharp annual loss in 2011, with the result impacted by heavy rainfall and poor quality ore.

Other commodity-linked stocks fell after prices for raw materials weakened overnight. OneSteel Ltd. AU:OST � OSTLY �and Alumina Ltd. AU:AWC � AWC �each shed 2%.

Fairfax Media Ltd. AU:FXJ �FFXLY dazzled, with shares surging 10.1%, after reports that iron ore billionaire Gina Rinehart�s stake in the company has increased to approximately 12%.

Elsewhere in the media sector, Ten Holdings Ltd. AU:TEN edged up 0.6% while Seven West Media Ltd. AU:SWM �shed 2.9%.

Property firms were weak, as Stockland Ltd AU:SGP �declined 1.2% and Lend Lease Ltd. AU:LLC �fell 2.7% while building products maker James Hardie Industries SE AU:JHX � JHX �dropped 2%

The falls came as a Housing Industry Association survey showed new home sales in Australia fell 4.9% in December. Separately, the Australian Bureau of Statistics reported capital city house prices fell 1% in the fourth-quarter of last year.

Also on the economic front, manufacturing improved slightly in January, with the Australian Industry Group - PwC Australian performance of manufacturing index rising 1.4 points to 51.6.

�The growth was underpinned by expansion in key sub-sectors such as food & beverages and transport equipment,� said Australian Industry Group chief executive Heather Ridout.

January private-sector jobs rise 170,000: ADP

MARKETWATCH FRONT PAGE

Private-sector employment continues to improve at a moderate pace, as borne out by 24 straight months of job gains, according to a survey compiled from ADP payrolls data. See full story.

U.S. stock futures up ahead of data; Amazon off

U.S. stock market futures point to a higher start for Wall Street on Wednesday, lifted by gains for Europe stocks. A key U.S. manufacturing survey is on tap for later, while Amazon.com and other results will also be in focus. See full story.

Wednesday�s biggest gaining & declining stocks

MarketWatch�s daily rundown of shares making sizeable moves in the premarket. See full story.

Updates, advisories and surprises

A roundup of the latest corporate earnings reports and what companies are saying about future quarters. See full story.

Europe stocks rise after manufacturing data

European stock markets rally Wednesday, lifted by banks and oil companies, after manufacturing data from Germany, the U.K. and the euro zone come in slightly better than expected. See full story.

MARKETWATCH COMMENTARY

Instead of acknowledging that banks have become a part of government, we keep pretending they are private institutions, writes David Weidner. See full story.

MARKETWATCH PERSONAL FINANCE

What�s the State of Retirement in the U.S.? It�s plagued with problems involving Social Security, contribution rates and more that need fixing now. See full story.

Top Stocks For 2012-2-1-12

4Q11 Revenue Increased 9.1% to a Record $137.6 Million

4Q10 Diluted EPS Increased 51.6% to $0.97

FY11 Revenue Increased 12.0% to a Record $475.2 Million

FY11 Diluted EPS Increased 41.4% to a Record $1.98

Company Maintains Fiscal Year 2012 Outlook

GREENVILLE, S.C.–(CRWENEWSWIRE)– Delta Apparel, Inc. (NYSE Amex:DLA) today reported financial results for its fourth quarter and fiscal year ended July 2, 2011.

Fourth Quarter Highlights

Net sales increased 9.1% to a record $137.6 million from $126.2 in the prior year period
Gross margins improved 340 basis points to 27.3%
Net income increased 50.6% to $8.5 million from $5.7 million in the prior year
Diluted EPS increased 51.6% to $0.97 from $0.64 in the prior year period

Fiscal 2011 Highlights

Net sales increased 12.0% to a record $475.2 million from $424.4 million in the prior year
Gross margins improved 80 basis points to 24.5%
Net income increased 42.2% to $17.3 million from $12.2 million in fiscal year 2010
Diluted EPS increased 41.4% to $1.98 compared to $1.40 last fiscal year

Robert W. Humphreys, Chairman and Chief Executive Officer, commented, �Fiscal year 2011 was exciting for us at Delta Apparel, Inc. and we are proud of our many accomplishments. Despite less than ideal market conditions, we achieved our eighth consecutive year of record sales, driven by organic sales growth, the acquisition of The Cotton Exchange and new license agreements. We continued to penetrate new markets and reach more consumers with our lifestyle branded activewear apparel and headwear. Having a vertically integrated, flexible manufacturing platform allows us to leverage our scale efficiencies while providing consistently high-quality products and reliable service to our customers.�

Branded Segment Review

Branded segment sales for the fourth quarter were $60.6 million, a 12.6% increase from the prior year fourth quarter sales of $53.8 million. Additional revenue from The Cotton Exchange, the college bookstore of division of Soffe, contributed to the sales growth, along with strong sales from the Salt Life� collection and higher sales of vintage inspired Junk Food� products. For the full year, sales of branded products grew 12.1% to $221.7 million, representing approximately 47% of total revenues. The segment had organic sales growth of 1.6% driven by mid-single digit sales growth in our activewear apparel and headwear brands, partially offset by sales declines of Junk Food� products. After achieving sales growth of over 40% in the prior year, revenue declined approximately 20% in the Junkfood business in fiscal year 2011 as it cycled the rollout of significant programs from the prior year. This decline, coupled with additional marketing and operational expenses associated with Salt Life� and the digital printing business, drove a decrease in operating income to $2.8 million in the fourth quarter of fiscal year 2011 compared to $5.5 million for the same period last year, and operating income of $8.4 million for the full fiscal year compared to $17.3 million in the fiscal year 2010.

Basics Segment Review

The basics segment had sales of $77.1 million for the quarter ended July 2, 2011, an increase of 6.5% compared to the prior year fourth quarter, driven by sales growth in catalog products, partially offset by declines in the private label programs. The revenue growth resulted from a 22.2% increase in average selling prices partially offset by lower unit sales. For the twelve months ended July 2, 2011, the basics segment had sales of $253.5 million, an 11.9% increase from sales of $226.6 million in the prior year driven from higher average selling prices offset by a slight decline in units sold. Higher selling prices, coupled with strong manufacturing results and the ability to leverage selling, general and administrative expenses, resulted in operating income of $8.8 million for the fourth fiscal quarter and $16.9 million for fiscal year 2011. This compares to operating income of $3.0 million in the fourth quarter of the prior year, and $2.9 million for fiscal year 2010.

Stock Repurchases

On August 17, 2011, the Company�s Board of Directors approved a $5 million increase in the Company�s Stock Repurchase Program, bringing the total authorization to $20 million. This marked the fourth increase since the program began in November 2000. Since inception, the Company has spent approximately $12.1 million under the Stock Repurchase Program, buying back approximately 1.2 million shares at an average price of $9.81. In fiscal year 2011, the Company spent $2.5 million repurchasing 177 thousand shares at an average of $14.18 per share. Approximately $8.0 million remains available for future stock repurchases pursuant to the Stock Repurchase Program.

Fiscal 2012 Guidance

The Company is maintaining its fiscal year 2012 outlook for sales and earnings. For the fiscal year ending June 30, 2012, the Company still expects net sales to be in the range of $500 to $520 million and earnings to be in the range of $2.00 to $2.15 per diluted share.

In fiscal year 2012 the Company faces challenging market conditions as a result of the volatile cotton market, inflationary pressures and general economic conditions which continue to impact discretionary spending. Although the Company believes it has taken these risks, as well as other factors, into consideration in determining the guidance for fiscal year 2012, the significance of the challenges, many of which are outside of the Company�s control, creates heightened risk to the volatility of earnings in the upcoming fiscal year.

Mr. Humphreys concluded, �Over the past few years, through organic growth and acquisitions, we have built a strong portfolio of exciting brands. While we are currently operating in a macroeconomic environment that is not particularly conducive to consumer spending and could pose some near-term challenges, we believe our collection of brands provides Delta Apparel, Inc. with compelling long-term growth opportunities through further diversification of products and distribution channels. In addition, the strength of our balance sheet gives us the flexibility to continue to make prudent strategic investments for growth in the future. The recent increase in authorization for our Stock Repurchase Program also gives us the flexibility to invest in our own shares if we believe market conditions have caused our stock to be undervalued. We remain committed to building significant and sustained value for our shareholders.�

Conference Call

The Company will hold a conference call with senior management to discuss the financial results at 4:30 p.m. ET today. The Company invites you to join the call by dialing (719) 457-2607. A live webcast of the conference call will be available at www.deltaapparelinc.com. Please visit the website at least 15 minutes early to register for the teleconference webcast and download any necessary software. A replay of the call will be available from August 31, 2011 through September 30, 2011. To access the telephone replay, participants should dial (858) 384-5517. The access code for the replay is: 7392740.

About Delta Apparel, Inc.

Delta Apparel, Inc., along with its operating subsidiaries, M. J. Soffe, LLC, Junkfood Clothing Company, To The Game, LLC, Art Gun, LLC and TCX, LLC, is an international design, marketing, manufacturing, and sourcing company that features a diverse portfolio of lifestyle branded activewear apparel and headwear, and high quality private label programs. The Company specializes in selling casual and athletic products across distribution tiers and in most store types, including specialty stores, boutiques, department stores, mid-tier and mass chains. From a niche distribution standpoint, the Company also has strong distribution at college bookstores and the U.S. military. The Company�s products are made available direct-to-consumer on its websites at www.soffe.com, www.junkfoodclothing.com, www.saltlife.com and www.deltaapparel.com. Additional products can be viewed at www.2thegame.com and www.thecottonexchange.com. The Company’s operations are located throughout the United States, Honduras, El Salvador, and Mexico, and it employs approximately 7,200 people worldwide. Additional information about the Company is available at www.deltaapparelinc.com.

Statements and other information in this press release that are not reported financial results or other historical information are forward-looking statements. These are based on our expectations and are necessarily dependent upon assumptions, estimates and data that we believe are reasonable and accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are also subject to a number of business risks and uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. The risks and uncertainties include, among others, the general U.S and international economic conditions; the ability to grow, achieve synergies and realize the expected profitability of recent acquisitions; the volatility and uncertainty of raw material, transportation and energy prices and the availability of these products and services; changes in consumer confidence, consumer spending, and demand for apparel products; the ability of our brands and products to meet consumer preferences within the prevailing retail environment; significant interruptions in our distribution network or information systems; the financial difficulties encountered by our customers and higher credit risk exposure; the competitive conditions in the apparel and textile industries; changes in environmental, tax, trade, employment and other laws and regulations; changes in the economic, political and social stability of our offshore locations; significant litigation in either domestic or international jurisdictions, the relative strength of the United States dollar as against other currencies; and other risks described from time to time in our reports filed with the Securities and Exchange Commission. Accordingly, any forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized. We do not undertake publicly to update or revise the forward-looking statements even if it becomes clear that any projected results will not be realized.

 

SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)
			Three Months Ended									Twelve Months Ended
			July 2, 2011				July 3, 2010					July 2, 2011						July 3, 2010
Net Sales			$	137,644			$	126,187				$	475,236					$	424,411
Cost of Goods Sold				100,058				96,028					359,001						323,628
Gross Profit				37,586				30,159					116,235						100,783
Selling, General and Administrative				25,836				21,531					91,512						80,695
Change in Fair Value of Contingent Consideration				-				-					(1,530	)					-
Goodwill Impairment Charge				-				-					612						-
Other Expense (Income), Net				165				115					345						(74	)
Operating Income				11,585				8,513					25,296						20,162
Interest Expense, Net				788				704					2,616						3,509
Income Before Provision for Income Taxes				10,797				7,809					22,680						16,653
Provision for Income Taxes				2,264				2,142					5,353						4,466
Net Income			$	8,533			$	5,667				$	17,327					$	12,187
Weighted Average Shares Outstanding
	Basic			8,428				8,516					8,486						8,514
	Diluted			8,772				8,861					8,747						8,733
Net Income per Common Share
	Basic		$	1.01			$	0.67				$	2.04					$	1.43
	Diluted		$	0.97			$	0.64				$	1.98					$	1.40
							July 2, 2011					Jul 3, 2010
Current Assets
	Cash						$	656				$	687
	Receivables, Net							76,821					60,991
	Inventories, Net							159,209					116,599
	Prepaids and Other Assets							4,059					3,475
	Deferred Income Taxes							2,931					3,162
Total Current Assets								243,676					184,914
Noncurrent Assets
	Property, Plant & Equipment, Net							39,756					37,694
	Goodwill and Other Intangibles, Net							24,217					25,442
	Other Noncurrent Assets							4,216					3,283
Total Noncurrent Assets								68,189					66,419
Total Assets							$	311,865				$	251,333
Current Liabilities
	Accounts Payable and Accrued Expenses						$	79,262				$	53,321
	Income Tax Payable							969					712
	Current Portion of Long-Term Debt							2,799					5,718
Total Current Liabilities								83,030					59,751
Noncurrent Liabilities
	Long-Term Debt							83,974					62,355
	Deferred Income Taxes							2,877					1,826
	Other Noncurrent Liabilities							19					1,687
Total Noncurrent Liabilities								86,870					65,868
Shareholders’ Equity								141,965					125,714
Total Liabilities and Shareholders’ Equity							$	311,865				$	251,333

 

 

Source: Delta Apparel, Inc.

Company Contact:
Delta Apparel, Inc.
Deborah Merrill, 864-232-5200 x6620
Chief Financial Officer
or
Investor Relations Contact:
ICR, Inc.
Brendon Frey, 203-682-8200

 

 

 

THIS IS NOT A RECOMMENDATION TO BUY OR SELL ANY SECURITY!