Restructuring Opportunity

11/24/2006 12:00 am EST

Focus:

Tobin Smith

Founder and Chief Research Analyst, NBT Equity Group

Widely-followed 'change' guru Tobin Smith is always on the lookout for a company in the midst of an evolution or revolution. Here, he hones in on the restructuring opportunities that often turn a companies fortunes around.

"The turnaround in the stock market off the "bad" housing starts number is just another sign of the strength in this market. You can bet the performance fee buyers (i.e. hedge funds) will be long and strong until the end of the year. I'd say we get a consolidation early in January UNTIL we get the next slew of buyouts and strong Christmas sales numbers.

"Intermec (IN NYSE) announced the restructuring plan it needed to implement to get its business model profitable as RFID sales start to ramp higher. The plan is expected to reduce the company's costs, streamline global operations and drive profitability. BRAVO!

"The many strategic and ownership changes which have occurred in our industry require a more aggressive focus on productivity in order to accelerate our competitive positioning," said Chairman and CEO Larry D. Brady. "While difficult, this restructuring is essential to establish a more agile and efficient posture required for competitive success."

"Intermec expects to take a total pre-tax restructuring charge of $7.6 million to $8.6 million associated with the cost saving initiatives. The company anticipates it will record approximately $6.5 million to $7.5 million of the total pre-tax charges in the fourth quarter of 2006, with the remainder to be incurred in subsequent quarters of 2007.

"As part of the restructuring plan, Intermec will be reducing its current worldwide workforce by approximately 9% by the end of the first quarter of 2007. The restructuring plan also includes the consolidation of certain of the company's facilities on a global basis.

"As a result of the restructuring and cost-reduction initiatives, the company expects to generate annual cost savings of approximately $22 million to $25 million, with some 75% of the savings occurring in operating expenses, and the remainder of the savings associated with the cost of sales. The savings will begin in the fourth quarter of 2006, and substantially all of the benefit of these cost initiatives is expected to be realized by the end of the first quarter of 2007. Slightly more than half of the cost savings are related to the company's restructuring actions with slightly less than half related to other cost initiatives and decreased discretionary expenses.

"Buy the shares of Intermec now while they hover around $25 and below our Strong Buy Under price."

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