• Daktronics sales and net profit up in 2Q fiscal 2019.

    Digital billboard maker Daktronics reported increased revenues and profits in the second quarter of fiscal 2019 (3 mos ended October 27, 2018).  Here are the results of the earnings release and earnings call transcript.

    • Revenues increased 2.4% to $173 million during 2Q fiscal 2019 (3 months ended October 27, 2018).  Spectaculars and out of home were up.
    • Net income increased 21% to $8.6 million due to increased revenues and reduced income tax expenses stemming from passage from the US Tax Cuts and Job Acts.
    • Daktronics ended the quarter in solid financial conditon.  Cash and marketable securities are $67 million.  Debt/Worth was 0.80.  Insider considers Debt/Worth of 1.0 or less low for a manufacturer.
    • CEO Reece Kurtenbach said that US tariffs are impacting aluminum and component costs:  “In the short term, the current global tariff and trade environment has created cost headwinds on commodity and components used in the production of our solutions.  We continue to monitor the situation and evaluate ways to minimize these impacts through vendor negotiations, alternative sources, and potential price adjustments.”
    • Kurtenbach was bullish on the company’s digital billboard prospects: “In our commercial business unit we see opportunities for growth mainly driven by digital opportunities in the spectacular segment both new and replacement systems for our account based business — businesses, expansion of solutions for indoor applications and continued replacement and new investment activity in the out-of-home segment.”
    • The market liked what it heard.  Daktronics stock increased 11.5% to $8.56.

    Insider’s take:  Daktronics had a decent quarter.   Leverage is low and cash balances are sufficient to handle any tariff related volatility.  Stormy weather ahead for digital billboard manufacturers because the existing 10% tariff on $200 worth of Chinese imports is increasing to 25% effective Jan 1.  More threatening is the Trump Administration’s threat to tariff an additional $257 million in chinese imports effective in February.   Digital sign makers are facing increased aluminum and electronic component costs due to the tariffs.  The digital billboards themselves have been largely exempt from the tariff because they are imported as TV screens and TV screens were not on the first tariff list.  Not so, however, with the second list of tariffs which the Trump administration is threatening to impose in February.  Now’s a good time to order a digital billboard if you want to avoid tariff related price increases.

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