Monday, August 07, 2006

Calls of Note Part 6

- Goldman Sachs notes Hansen Natural (NASDAQ:HANS) reported 2Q2006 EPS of $0.28, well below their $0.34 estimate and only slightly above a $0.27 consensus (when excluding estimate). This is likely to disappoint market participants that were likely hoping to see earnings in the $0.31-0.32 range at a minimum. There are two drivers behind the miss relative to expectations. First, expenses were $0.04 higher from both packaging innovation (COGS) and merchandising spending (SG&A) due to renegotiated shelf programs and new merchandisers. Second, $0.02 of the miss came as sales growth of 83% was short of our 95% estimate. The slower sales growth was likely due in part to slowing distribution expansion in advance of the transition to Budweiser wholesalers, but offset in part by some inventory building.

The stock could open down 15% as in-line earnings are disappointing in this situation. Goldman is preliminarily lowering their estimates by $0.04 to $0.34 for 3Q2006 and $0.28 for 4Q2006 to reflect slower distribution expansion, a bit less organic growth, and an assumption that merchandising support spending will remain high over the balance of the year (though this last assumption could prove conservative pending what they hear of the conference call). Firm's new FY2006 estimate is $1.12, and are reducing out-year estimates to $1.81 for 2007, $2.35 for 2008, $2.84 for 2009 and $3.37 for 2010, reflecting 32% average growth from the lower base.

Tgt goes to $55 from $62.5.

Notablecalls: Note to Goldman: HANS traded has down 20% in pre mkt. How many energy drinks did you see on the shelves 2 yrs ago? How many are there now? Think HANS' margins will hold?

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