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Consumer Spending, Economic Changes Shape Midcaps

Change was a good thing for the first-quarter results of midmarket health-care and Internet companies, but other sectors more dependent on consumer spending took a hit.
David M. Katz, CFO.com | US
June 11, 2009

As companies heavily reliant on consumer confidence were being pounded in their sales numbers and their ability to generate cash, those on the cusp of major political and economic transformations have more than held their own, first-quarter results for midsized companies in five industries suggest.

Probably hurt by the dive in consumer spending over the last year or so, companies in the semiconductor and machinery sectors of the CFO Midcap 1500 (all with yearly sales of $100 million to $1 billion and 2009 first quarters ending March 31) saw their revenues and cash earnings per share plummet in this year's first quarter compared to the same 2008 period.

In sharp contrast, the health-care and Internet midcaps have done swimmingly, all things considered. Buoyed, perhaps, by the nation's growing interest in broader medical coverage, the 41 health-care midcaps saw their aggregate revenue jump from $3.70 billion in the first quarter of 2008 to $3.98 billion in the same quarter of this year and their average cash EPS rise from 25 cents to 32 cents.

And with more and more companies looking to wring revenue out of the Internet in response to the economic downturn, the 36 midcaps representing the Internet software and services industry reported sprightly revenue growth — from $2.96 billion in the first quarter of 2008 to $3.11 billion in the same period of this year. They were also able to generate 2 cents more cash for their shareholders than they did a year ago, recording 25 cents in cash EPS for the first quarter of 2009.

There were more mixed results for the non-Internet software industry, where revenue was up 4%, but cash EPS retreated by the same percentage, moving from 25 cents to 24 cents. Even the revenue numbers, though, would have been notably weaker were it not for several acquisitions midmarket software companies made between last year's and this year's first quarters.

Among the 43 midcap semiconductor and semiconductor-equipment makers with first quarters ending March 31, sales dropped from a total of $3.39 billion in the first quarter of 2008 to $2.17 billion in this year's opening quarter. Further, cash EPS swooned from 5 cents to 2 cents.

Similarly, 41 machinery midcaps saw a collective 22 percent drop in first-quarter revenue, from $4.82 billion in 2008 to $3.74 billion this year. As was true for the chipmakers, the midcap machinery cash EPS dropped when comparing the two quarters, from 23 cents in 2008 to 9 cents it in 2009.

The similarity ends, however, when the comparisons go back to 2007. In the semiconductor industry, where first-quarter cash EPS has been dropping since 2007, when it came in at 9 cents, the machinery industry's 2009 first-quarter cash EPS compares favorably to the 0 cents it recorded in 2007.

Presumably, the widely reported drop in consumer confidence may have had something to do with the first-quarter declines this year among chipmakers, whose products drive many forms of consumer electronics, and in machinery, which includes the slumping auto and homebuilding sectors.

The CFO 1500 index, culled and analyzed by CFO.com from data provided by Capital IQ, consists of publicly traded companies headquartered in the United States that took in between $100 million and $1 billion in revenues in the fiscal year ending December 31, 2008.

2009 Q1 CFO Benchmark_Summary

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What Is the CFO Midcap 1500?

The CFO Midcap 1500 is an index created by CFO. Based on publicly reported data provided by Capital IQ, it consists of publicly traded companies headquartered in the United States that have annual revenues ranging from $100 million and $1 billion.

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What Is Cash Earnings per Share?

Cash EPS is calculated by dividing a company's operating cash flow by its diluted shares outstanding.

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Why Is Cash Earnings per Share Important?

Cash EPS is a metric that measures how much money a company produces, over a given period, that is immediately available to be returned to shareholders or reinvested in the company's operations. The metric can be used to benchmark a company's cash-generation performance relative to others within its industry, to those in other industries, or to the midcap index as a whole.




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