Autodesk Earnings Call in Spotlight After 2 Activists Amass 11.5% Stake
Autodesk (ADSK) - Get Report third-quarter earnings call on Thursday will draw heightened attention from investors thanks to Scott Ferguson's Sachem Head Capital Management and Ricky Sandler's Eminence Capital disclosing they have amassed a 11.5% stake and formed an agreement to coordinate their efforts.
Sachem Head noted the stock was "undervalued" in an early November filing with the Securities and Exchange Commission disclosing a 5.7% stake. Eminence reported its 5.8% stake on Monday.
While the firms have outlined details of their partnership, they have not disclosed specifically what they want Autodesk management to do. "Eminence Capital believes that Autodesk is an exceptional franchise with a common stock that is significantly undervalued," according to a statement from Eminence. "We share a view with Sachem Head that shareholder value can be maximized by actively engaging the management team and the board of directors."
Steve Koenig of Wedbush Securities said boosting margins should be job one.
"When we look at Autodesk the single biggest opportunity for improving shareholder value we think is cost control," he said. "The number two opportunity would be better use of the balance sheet and cash flow generation to returns cash to shareholders."
Buybacks would allow the company to return cash to shareholders, while maintaining flexibility for future years.
Morningstar analyst Andrew Lange suggested in an email that concern over the return of cash to shareholders has persisted. "Management continues to be pestered about doing a large share buyback," he wrote. The company has been "coy" about uses of its cash, Lange added
Autodesk acknowledged the investments by Sachem Head and Eminence. "As always, we are open to constructive dialogue with any Autodesk shareholders, large or small," a company statement asserted.
Autodesk develops the AutoCad computer-aided design software and the Maya 3-D animation program, among others.
The San Rafael, Calif., company reported $1.51 billion in revenue for fiscal year 2014, but prepared investors for a decline at its September analyst day. Autodesk said it expects fiscal year 2015 sales between $2.465 billion to $2.505 billion, with non-GAAP operating margins of 9% to 10%. The company forecast $580 million to $600 million in fiscal third-quarter revenue.
Wedbush analyst Koenig suggested that the management is unlikely to answer the questions about improving its margins and returning capital to shareholders on Thursday. "I just don't know that we'll get answers to it on the third-quarter call," he said.