Continued lackluster capital spending by its corporate customers weighed on American Power Conversion’s first-quarter performance, but the West Greenwich company is sitting on its largest cash reserve ever, officials said.
APC, maker of equipment that protects computer systems from power surges, reported that net income for the first quarter sank 39 percent from the first quarter last year, to $16.6 million. Revenue dropped 16 percent to $296.7 million.
"Our top-line performance continues to reflect general industry weakness, particularly (information technology) spending in the corporate sector," APC President and CEO Rodger B. Dowdell Jr. told analysts during a May 2 conference call.
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
What’s more, Dowdell painted a bleak picture for hopes that demand will pick up any time soon.
"The outlook for IT, and subsequently our products, is still very difficult to predict," Dowdell said. "There’s been no definitive indication from leading IT vendors that they’re seeing, nor can reasonably predict, when an uptick in IT spending will occur."
But APC’s quarterly earnings of 8 cents per share – which included $5.2 million in charges related to the March closing of a factory in Asia and the layoff of 1,000 workers – were generally in line with Wall Street’s expectations. After the earnings release the company’s stock held steady at around $13 a share, a level it has bobbed at for much of the year.
Analyst Eric A. Prouty of Adams, Harkness & Hill, a Boston investment bank, said APC appears to be weathering the IT spending drought relatively well, noting that the company has kept a strong balance sheet and remains profitable – unlike many other companies in the tech sector.
"I thought APC delivered fairly solid results in light of the current IT spending environment," Prouty said. "First and foremost, you’ve got to keep your finances strong, and that’s what APC’s done, with no debt and lots of cash on the balance sheet."
Indeed, Dowdell said APC’s cash reserves are at an all-time high, having grown from $388 to $480 million, generated primarily by increased cash from operations. While he said there is "money available to invest in the business," he downplayed the potential for near-term acquisitions or a stock buyback when asked about those possibilities by analysts.
He did hint, however, that there is potential for both in the longer term.
"We do see some continued interesting opportunities to invest in the business, but not at this time," Dowdell said. Officials during the conference call said there have been discussions of a share buyback – which tends to boost the value of remaining shares – but no decisions have been made.
Prouty said it’s common for a company with no debt and substantial cash flow to consider either making strategic acquisitions or repurchasing stock.
"They have the cash reserve and financial wherewithal to, quite frankly, take advantage of a downturn like this," Prouty said. "With positive free cash flow, they have the opportunity to continue to innovative products in house, and down the line there’s the potential for strategic acquisitions."
APC appears focused on the former, as Dowdell emphasized a continued focus on product innovation as "essential to our long-term success." He highlighted PowerStruXure, APC’s latest product offering, which provides backup power to data centers. The system won an award from Government Computer News magazine.
Dowdell also said the company this year will work to control capital spending, continue cost-cutting measures and implement aggressive pricing.
Though most of APC’s quarterly report was gloomy, there were a few highlights.
Gross profit margin was up for the quarter, mostly because of a shift away from large-system business and toward sales of higher-margin small systems. Donald Muir, APC’s chief financial officer, said gross margin improved from 33.9 percent in first-quarter 2001 to 36.1% this year.
Business in Latin America – though just 3 percent of the company’s overall revenues – has been strong and is poised for future growth, Dowdell said. And officials said they have seen growing demand in the government, retail and biotechnology sectors.
But, Dowdell said, "Ultimately, the essential missing link is end-user spending."
APC has 5,575 employees, including more than 1,000 in Rhode Island.
