A Bull's-Eye for Buckeye

I wrote in my June 26 column that surging shares of fiber maker Buckeye Technologies (BKI - commentary - Trade Now) could keep rolling along. What an understatement -- the firm's latest financial results were actually good enough to supply the stock with an outright lift.

Revenue for Buckeye's fiscal fourth quarter (ended June 30) was down a sharp 18% year over year to $176.9 million. But that was expected. The bigger story was management's ability to adapt to this recession and the sense that financials for the firm are already on the mend.

On a sequential basis, Buckeye's revenue ticked up 3%. Gross margin also increased sequentially by 1.4 percentage points, to 15.3%. That is still well below Buckeye's recent peak gross margin of more than 20% from two years ago, but the quarter marked the second sequential increase in both revenue and gross margin.

Slightly lower overhead and interest expenses magnified the positive sequential comparisons by the time earnings per share (EPS) were calculated. On an operating basis, EPS of 14 cents represented a 27% increase over the 11 cents posted in Buckeye's fiscal third quarter. The figure was also 4 cents above the highest analyst estimate for the quarter.

A Federal Boost

But that was hardly the end to the quarter's good news. Thanks to a federal government program to promote use of alternative fuels (explained in detail in my June 26 column), Buckeye also realized a whopping $54.2 million in alternative fuel mixture credits. Sure, this is a non-operating item that cannot be counted on after this calendar year. But the credit is real cash for Buckeye and a valid tailwind for its shares.

Set to expire at the end of 2009, the government program should end up generating around $12 million a month in credits for Buckeye for the remainder of the year. And this short-term windfall is allowing Buckeye to make real and lasting improvements to its balance sheet that should pay dividends down the road. The most obvious benefit now can be seen in the firm's long-term debt, which was reduced by an impressive $61.1 million last quarter, to $327.5 million. Management expects debt to get down to $270 million by June 30 of next year.

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At the time of publication, Moreland was long BKI, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.