Boat Tours, Taste Tests : S.D. Firms Try Harder in Courting Analysts
Instead of just talking about cheeseburgers, fish sandwiches and Fajita Pitas during a recent meeting with about 30 Wall Street analysts, Foodmaker executives offered the analysts everything on the Jack-in-the-Box menu--as well as some dishes still under development in the corporate test kitchen on Balboa Avenue.
“We wanted to make sure they knew our products, including the new ones we’ll be introducing,” Chief Financial Officer Charles W. Duddles said Monday. The taste test was “a good way to get them familiar with what we have to offer,” Duddles said.
Serving food to about 30 analysts was one example of how local companies use novel approaches to make impressions on financial analysts. Those analysts are important to local companies because their stock recommendations usually have a significant influence on share prices.
Making a Special Effort
Even before the Oct. 19 market crash, publicly traded companies in San Diego had to “put a special effort into getting out the information that (out-of-town) analysts are looking for,” according to Irving Katz, director of research for Thomas Green/San Diego Securities.
That extra effort is needed because it is difficult for firms in San Diego to attract the attention of financial analysts who are deluged with information from small, undercapitalized firms around the country, Katz said.
Those corporate messages have become more important in the wake of Oct. 19 because “it’s going to be harder for lesser-capitalized companies that have been beaten down so badly (after the crash) to attract investors who now can buy blue chips at lower prices,” Katz said.
Additionally, “there will be fewer and fewer analysts as the brokerage houses consolidate and eliminate overhead by reducing the number of people on research staff,” Duddles predicted.
An example of the consolidation is the recent Shearson Lehman Brothers’ acquisition of E.F. Hutton & Company Inc.
Taste Test in 1986
Foodmaker, parent firm of Jack-in-the-Box, first augmented its traditional financial and marketing information with a taste test in 1986 when company executives approached bankers for loans to finance a leveraged buyout of the restaurant business, which was then owned by St. Louis-based Ralston Purina. Foodmaker played host at the sessions for bankers who weren’t familiar with the chain’s menu, according to Duddles.
“We wanted to get our message across to analysts who follow our company and write research reports,” Duddles said. “We want them to understand Foodmaker’s strategy and our financial results, but we also want them to know we have quality food.”
Foodmaker was concerned because some investment-house analysts and large institutional investors had lumped Foodmaker, which has drastically changed its menu in recent months, with Wendy’s and Church’s Fried Chicken, two restaurant chains that recently have lost market share.
Analysts also had a limited knowledge of Foodmaker because it only recently completed its initial public offering. And, Foodmaker wanted to show off its new menu to analysts in New York City, where the company has no Jack-in-the-Box restaurants.
Only a handful of analysts from Los Angeles and San Francisco--and none from Phoenix--came to San Diego last year to attend a forum of San Diego-based companies presented by the San Diego Financial Analysts Society, Katz said. The companies ranged from small, newly formed businesses to giants like Rohr Industries.
Katz said he is not sure what will happen at the next forum May 18. A dozen local companies, including some larger firms and some lesser-known companies, will present reports to analysts in attendance.
Joining Forces
Aware that it is difficult to draw East Coast analysts to the West Coast, San Diego Gas & Electric has held its West Coast analysts meeting in conjunction with an Edison Electric Institute meeting that is held every two years in San Diego.
The utility invites a handful of analysts to fly into San Diego one day early in order to meet with top SDG&E; executives.
During the most recent meeting in San Diego, SDG&E; treated visiting analysts to a boat ride on San Diego Bay with the utility’s top executives. The boat trip gave analysts “who are very competitive with each other” a chance to buttonhole key SDG&E; executives in an informal setting, according to Jenny Lewis, SDG&E;’s manager of investor relations.
SDG&E;, which is going to New York in 1988 to meet with East Coast analysts, won’t charter a boat to cruise New York harbor. Instead, the utility will repeat one of the analysts’ favorite parts of the San Diego meeting--a free-wheeling presentation by a member of the state Public Utilities Commission. The commissioner, who will pay his own way to the meeting, also will meet with analysts during a session from which SDG&E; will be absent.
“The PUC presentation was very popular with the analysts last time, because the California PUC is obviously very influential throughout the U.S.,” according to Lewis.
Some companies, like Foodmaker, were hit especially hard by the Oct. 19 crash. Foodmaker fell from a pre-crash high of $10 to just under $6 before rebounding to about $8. SDG&E; fell just four points on Oct. 19 to 28 7/8, but since then has been trading at about $31.
Consequently, SDG&E; has not modified its approach to Wall Street analysts and institutional investors. However, “if we’d have been one of those stocks that fell 50%, you can bet we’d be . . . regrouping and trying to see how we could drum up more support from the analysts,” Lewis said.
