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Safe harbor? Investors seek it in
first qtr. April 12, 2004
In the first three months of this year, investors were in a cautious mood, pouring money into companies that have cut costs and increased productivity. They also sought out companies that stand a chance of benefiting from the movement of manufacturing and jobs overseas. To many investors, Hub Group Inc. of Downers Grove — which transports goods by rail, truck and cargo ship — appeared to fit both descriptions. Hub's shares rose 39% to the $30 range in the first quarter. Beginning in 2000, Hub started installing a $50-million computer system to automate everything from sales orders to truck movement, replacing the old practice of spending long hours on the phone with dispatchers. Since then, the company has been able to cut its workforce 20%, to 1,200 employees. At the same time, Hub is managing the shipment of products arriving from Asia at West Coast ports, destined for Target, Home Depot and Sears, Roebuck stores — all Hub clients — around the U.S. "A lot of the products being manufactured in China now are coming through the West Coast," says David P. Yeager, Hub's vice-chairman and CEO. "At certain times, it's tough to find enough containers and trailers for shipping all these goods." With shipping capacities tight, he adds, Hub has been able to charge clients more for its services. While Hub's revenues inched up 2% in 2003, to $1.36 billion, earnings rose more than fivefold to $8.4 million, or $1.07 per diluted share. (Hub's revenue figure includes fees that are passed on to the trucking firms and railroads with which Hub has contracts.) Improving productivity with the new computer network contributed to nearly a half-point gain in gross margins, to 12.6%. | ||
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| Next phase for
Hub In the first quarter, stocks in both the Standard & Poor's 500 Index and the Crain's Index of local companies moved up less than 2%. After a 28% run-up in the S&P last year, investors recently have been in a pause mode, says Carl M. BIRKELBACH, chairman and CEO of BIRKELBACH Investment Securities Inc. in Chicago. They're concerned, he believes, about the effect that rising oil prices, swelling federal deficits and the unemployment picture will have on the economy later this year. "The easy money was made in stocks in 2003," Mr. BIRKELBACH says. "Investors continue to look for companies that have reduced their costs to increase their earnings, but many corporations have been cutting back for several years now and there isn't much more they can do." Hub isn't finished yet. In February, it revamped its sales organization, which had been strung out among 31 satellite facilities but is now centralized at headquarters. Improved coordination will be essential to snare more business from a new customer, Arkansas-based Wal-Mart Stores Inc. "Hub has turned its operations around by focusing on the cost side of the equation," says Alexander Brand, an analyst with BB&T Capital Markets in Richmond, Va. "The next phase is to go out and win more new business and develop some top-line growth. I'd like to see signs of that developing later this year." Two out of five Technology companies didn't perform well in the first quarter, held back by fears that the sector had risen too far too fast late last year. Shareholders in Cabot Microelectronics Corp., an Aurora-based maker of chemical slurries used to polish the silicon wafers in semiconductors, got edgy in the first quarter when a couple of analysts raised doubts about Cabot's ability to keep up with the industry's move toward thinner integrated circuits. The current industry standard for thickness is 130 nanometers (or 130 billionths of a meter). Chip-making giant Intel Corp. of Santa Clara, Calif., is leading the advance to 90 nanometers. Cabot's shares declined 14% in the quarter as Wall Street debated the implications of the analysts' red flag. The company in the recent past has controlled two-thirds of the slurry industry, but two out of five major silicon chip makers have tapped rivals recently to produce slurries for the 90-nanometer standard. "Two out of the five have selected us," reports Cabot Chief Financial Officer William S. Johnson. "We're disappointed that we haven't been endorsed by all five. We still think we have the strongest position in the industry, and we'll work hard to get selected by all five eventually." Suresh Balaraman, an analyst with Think Equity Partners LLC, a small investment bank in San Francisco, insists that the 90-nanometer debate is beside the point. "The volume of wafers at 130 nanometers being produced over the next couple of years will be 20 to 40 times the volume of 90-nanometer wafers," he predicts. A nervous market always spawns short-sellers, who have gobbled up some 7.4 million Cabot shares, or 30% of its active "float." Mr. Balaraman, who owns 1,000 Cabot shares, smells a rat: "The shorts have helped drive this stock down. Trading lately has reflected some very negative market psychology. I still think this company will grow its earnings 25% a year for the next three years. That makes this a good time to buy the stock." ©2004 by Crain Communications Inc. | ||
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