Garda World shares surge as quarterly net up 40 per cent to $7.2M
- Garda World Security Corp. (TSX:GW) confounded critics of last year's acquisition of a U.S. cash logistics business by reporting a 40 per cent increase to quarterly profits that prompted its share price to surge Wednesday.
"We've once again done the job," company founder and CEO Stephan Cretier said in an interview Wednesday. "Today people are seeing the results and maybe starting to imagine what it can maybe become in the next two years."
The results prompted Garda's shares to surge by nearly 16 per cent. The stock closed up $2.06 at $14.99 on the Toronto Stock Exchange.
The Montreal-based company said it earned $7.2 million in the fourth quarter ended Jan. 31 on an acquisition-boosted 46 per cent rise in revenue to $293.5 million.
The profit amounted to 23 cents per share compared with year-ago earnings of $5.1 million, 17 cents per share, on revenue of $200.4 million.
Helping boost the earnings was a tax recovery of $700,000 or about two cents per share.
According to Thomson Financial the average analyst estimate had been for earnings of 13 cents per share based on four analysts.
Hugues Bourgeois of National Bank Financial said the results were positive and indicate that promised synergies have found the way to the bottom line.
"Overall gross margin was 25 per cent, compared with 22.1 per cent last quarter and 17.8 per cent last year, and the strongest ever for the company," he wrote in a report, setting a target price of $25.
Garda purchased California-based ATI Systems International in April 2007 for US$340 million, raising its workforce to about 50,000.
Although Cretier denied gloating or feeling vindicated by the results, he said they prove the company made the right decision to bear short-term pain for long-term gain.
"I was dying in certain newspapers last summer all because some of the investors really wanted us to not be successful again in the U.S.," he said.
"We've got this culture in Canada where every time somebody is a bit more predatory or aggressive in the market they are going to crash."
The largest acquisition in Garda's history required management execution beyond what it had previously known, Cretier said. Management was changed in the U.S. and the company's entrepreneurial culture was pushed to employees.
"You just can't go in there and try to clean up the place and make this from a family-owned business to a performance-driven publicly traded business without cracking some eggs."
ATI was not seen as a quality provider. But with almost 70 per cent of trucks and uniforms being under the Garda brand, the company has strengthened its competitive position against market leader Brinks, he said.
After exceeding its synergies target of $30 million and the integration stage behind it, Garda plans to seek new acquisitions of small strategic players in Canada and the United States. But no large acquisitions are foreseen.
Annual earnings for the armoured-car and security-guard provider were $15.6 million or 49 cents per share in Garda's financial year ended Jan. 31, down from $21 million or 70 cents per share in the prior year. Revenue swelled 71 per cent to $1.17 billion from $683 million.
Sara O'Brien of RBC Capital Markets said the quarterly results shows evidence of significant synergies in cash handling.
However, she said the physical security division results were disappointing as sales decreased five per cent because of deferred contracts, business pruning and higher overtime.
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