Bagels and Lox

 | Mar 09, 2012 | 9:30 AM EST  | Comments
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Earnings season rolls on, and although it's mostly behind us for the bigger names, reports are still trickling in for some of the smaller names. Some of these go relatively unnoticed because of a lack of interest or analyst coverage, but sometimes there's opportunity lurking.

Yesterday, Omega Protein (OME), my favorite fish oil company, announced the highest annual revenue figure in the company's history, $235.2 million, which was up 40% from 2010. The company earned $34.2 million, or $1.71 per share. While that sounds like an impressive bottom line, it included $26.2 million in settlement proceeds from the Gulf oil spill disaster. Absent that windfall, it still would have been a decent year for Omega; assuming a 33% tax rate and backing out one-timers, by my calculation, EPS would have been around $0.90.

It was a big year for catching menhaden, the oily fish that Omega harvests -- in fact 2011 represented the highest fish catch since 2002, and highest overall production since 2003. Gross margins, however, fell 600 basis points to 23.2%, primarily due to a decrease in fish meal prices and higher production costs. That's still a better gross margin than five of the past seven years.

Fourth-quarter revenue jumped 46% to $62.8 million, but net income fell from $8.3 million, to $563,000, or $0.09 a share excluding nonrecurring items. So it goes in the fish oil businesses: Costs are all over the place, and there's little consistency.

Omega's balance sheet remains solid, though. The company ended the year with $51.4 million in cash, or $2.63 per share, vs. $31 million in debt. Omega is currently trading at just 0.91x tangible book value per share. I've owned this name a few times over the years, and it is definitely not of the "buy and hold" variety, in my view. Since earnings were released after the market closed yesterday, today should be an interesting trading day for Omega, which has historically been very volatile.

Enough with the lox; on to the bagels. Last week, Einstein Noah Restaurant Group (BAGL), put up good fourth-quarter numbers, earning $0.39 per share, above the $0.34 consensus estimate. Revenue was up 8.6% for the quarter to $115.1 million but did fall a bit short of the $116.9 million consensus. This 773-store chain, which has locations in 39 states and D.C., has big plans for 2012; the company intends to open another 60 to 80 stores, most of which will be franchised or licensed.

This company isn't exactly cheap at these levels, trading at 19.5x trailing and 14x 2013 consensus estimates, and I remain on the sidelines. But I am intrigued by the $0.125 quarterly dividend that the company started paying in 2011. That equates to a solid 3.3% yield, second only to Darden's (DRI) 3.4% yield in the restaurant group. That's a pretty heady payout ratio of 78% for Einstein (Darden's is about 45%); time will tell whether it can grow the business, and the dividend along with it.

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