Maverick Tube

[nodoodahs]

Maverick Tube Corp. (NYSE:MVK - News) shares dropped 10.4% after the company said it expects to post second-quarter per-share earnings of 58 cents to 63 cents, excluding any impact from the previously announced sale of its industrial hollow structural sections business. The tubular products maker sees a 25-cent gain from the sale, which is expected to close in the quarter. Maverick expects weaker-than-anticipated earnings contributions from its industrial products and said it hasn't yet seen an expected recovery in the nonresidential construction sector, which is hurting its electrical conduit shipments business.

I think this may be a great buying opportunity. MVK has decent fundamentals and was already cheap. This is a classic overreaction IMO. If you're bullish on commodities and oil long-term (and don't already have two steel companies!) you might want to give it a look. I'm considering freeing some capital for it ...

I mean, you can pay $300 for $7 of Google earnings or $30 for $5 of Maverick earnings.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

While the drop in June provided a nice swing trade for those with capital to take advantage of it, this stock just hasn't gotten any cheaper and the fundies just don't look compelling considering my current overweight in oil and steel. Plus, the news is mostly negative. Not declaring an officer's holdings, losing another officer this year, yada yada.

http://finance.yahoo.com/q/ud?s=MVK
http://biz.yahoo.com/ts/050830/10240293.html?.v=2

At the moment, I'm glad I didn't sell anything to make a long-term space for MVK, but I sure wish I had picked up the quick 8-10% after June's dip.

Interestingly, I did drive by one of their plants on my way to the gun show in Conroe TX a weekend ago, and a truckload of tubes turned out in front of me. They were nice enough to swing to the right and let me pass afterwards, and that almost made me reconsider buying them ...
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Once I get some free time this weekend I'll dig at the filing and post some thoughts. For now, they "beat" the expectations, but the "expectations" had drifted down from $0.77 per share last month to $0.61, and they made a $0.63. It remains to be seen if the market punishes them again, they have recovered from the last belting they took.

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh72479_2005-07-25_23-56-48_n2542343_newsml

UPDATE 1-Maverick Tube second-quarter earnings down
Mon Jul 25, 2005 07:56 PM ET
(Adds details)
NEW YORK, July 25 (Reuters) - Oil well pipe maker Maverick Tube Corporation (MVK.N: Quote, Profile, Research) on Monday posted lower second-quarter earnings on weak demand for its electrical conduit products.

Net income was $38.7 million, or 89 cents per share, compared with $58.0 million, or $1.36 per share, in the year-earlier quarter, the St Louis-based company said .

Income from continuing operations for the second quarter was $28.6 million, or 66 cents per diluted share.

"Despite the anticipated reduction in Canadian activity due to spring break up, energy gross margins improved over last quarter primarily due to higher selling prices and the anticipated reduction in steel costs flowing through cost of goods sold," said Chairman and Chief Executive Officer Robert Bunch.

"Our industrial segment has not been as robust. Non-residential construction activity, which was expected to increase from 2004 levels, was actually down 9 percent through May.

"As a result, while industrial product pricing was in line with expectations, volumes were below our forecast. We remain hopeful that activity levels will improve in the second half of the year."

Maverick Tube said sales from continuing operations fell to $405.4 million in the second quarter from $417.1 million in the first quarter. Sales of energy products recorded in the second quarter were $319.6 million, down from $333.6 million in the first quarter.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

I'm watching MVK and gonna wait for the earnings report (which is due out 7/25 if I'm not mistaken) before pulling the trigger. It'll be one of several I spend time looking at after it reports.

Negative OCF in a quarter is a pink flag for me ... to paraphrase Confucious, "one good quarter does not a long a prosperous life make and neither is one bad quarter a sign of imminent demise." If I see two quarters it becomes more "red."

I last gave MVK a hard look-over in April, and passed on MVK in favor of better companies on a fundamental basis. A lot of steel companies floated onto my list due to low PEs and most I discarded, buying two, and putting some others into a watch list, like MVK. When they dropped 10% in a day, it attracted my attention as a potential buying point. I was actually sorta hoping they'd continue to drop, it would make MVK more attractive to me.

Why did I pass on MVK back in April? I was a bit concerned with spotty Free CF and some reliance on Financing CF, but in a capital-intensive industry I can be a little more forgiving. Other reasons I passed on MVK in April include my having two other steel companies, two shippers, an industrial chemical servicing oil companies, and a major integrated oil in the same time frame - I just didn't feel comfortable adding MVK to the menagerie given its fundamentals and price at that time. That's the biggest reason I haven't bought MVK, I am already loaded up on oil and steel that I like even better (as I mentioned in the post), so MVK has got to be cheaper or better for me to add it.

This is a company that's been profitable in 8 of the last 10 years and has pretty good (not great) metrics, and is in an industry that I expect will have significant growth as the search for oil supply increases to meet demand.

The best that could happen from my perspective is for them to miss expectations this quarter and get punished by the market - if the bottom line business still looks good but is trading at closer to 4 PE instead of the current 6-point-something PE, I might just back the truck up. I also have to free up the capital for the purchase LOL!

Insider action per http://finance.yahoo.com/q/it?s=MVK has half those sales as one transaction, Pamela Boone sold them. It is possible she sold because she left the company, see this link http://www.biotechfind.com/news/news-Valley-Forge-Scientific-5662.htm and quote: Synergetics has hired Pamela G. Boone, who has public company experience, to serve as its Chief Financial Officer. Ms. Boone joined Synergetics in May 2005 from Maverick Tube Corporation, a Missouri-based company and leading North American producer of welded tubular steel products used in energy and industrial applications, where she most recently served as Vice President, Treasurer and acting Chief Financial Officer. For example, Pamela left for whatever reason and it's understandable that someone in her position might sell, heck, she might have been forced to sell as part of her severence or some other agreement. I don't know her situation but at the moment I'm OK with MVK's insider sales. If I get REALLY curious I may call Pam at SYNERGETICS, INC., 3845 Corporate Centre Drive, St. Charles, Missouri 63304, (636) 939-5100. No I don't know her personally and probably won't call, but keep in mind, investors can call the company just like an analyst can! Since she worked for MVK in St. Louis, and St. Charles is really just a ritzy suburb to the north, this looks like a good move for her, she probably lived up there anyway. She had been at MVK for a while, she was acting CFO before being named CFO in 2001, so it's conceivable she accumulated the shares over quite a while and sold them all.

I know that I mentioned insider sales as a negative in my commentary, and they generally are, but kind of a "soft negative" or "pink flag" unless either the amount is stupendous, like the $214 million sold by insiders at CFC or it is every insider selling out just before the blackout date, then it's a "red flag." When can you accept a pink flag? Depends on your risk tolerance. In my commentary I mentioned the insider selling at NEW, the CEO sold $11 million, but looking more closely it was an options exercise for diversification (he sold about 1/6 his holdings) so I accepted it and went to the next level of analysis. If I can satisfy myself that the insider sales aren't just rats trying not to be the last one off the ship, but instead are legitimate sales not reflective of their opinion of the company's prospects, I will buy when insiders sell.

Notes on MVK per S&P research report:

In May 2005, MVK announced a definitive agreement to acquire Tubos del Caribe S.A., a Colombian manufacturer of oil country tubular goods and line pipe; substantially all of the equity interests in Consorcio Metalurgico Nacional S.A., a Colombian manufacturer of steel electrical conduit and other pipe and tube products used in a variety of industrial applications; and Advance Corp., a Houston, TX- based distributor of OCTG and electrical conduit. The purchase price of $186 million includes about $30 million of assumed debt. This may impact their 2Q earnings and cash flow as well as debt metrics.

They sell OCTG, line pipe, coiled tubing and couplings. In 2004 about 66% of sales were energy products. The electrical conduit products are nonresidential. They also produce tubes for use in axles, furniture, scaffolding, and sports equipment.

The OCTG business may be impacted by an increase in carbon grade tubular imports which may impact their top line.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[stever]

Bill, do you still like MVK? I looked at MSN and see that insiders have sold this year ; 30% of holdings in the last 6 mos. Do you know the percentage of steel used in oil vs their rolled steel for commercial use? I can not find it in the annual report. It looks like in q one, that the company had large neg cash flow from ops and 25 cents of its eps of estimates .58 to. 63 in q2 will be from the sale of HSS business. Do these facts change your opinion?? thanks , stever