With all the gloom and doom that surrounds the piano industry, I was surprised to see that the stock of the parent company of Steinway shot up yesterday. Now knowing how little I actually understand about the stock market-- lots of times a press release that says record profits makes the stock plummet- I was just wondering, does this story mean that Steinway is doing well? (I know they sell a lot more than just pianos-Conn, Selmer, Bach and half a dozen other brand names of jazz and orchestra instruments)
Here is the article:
Steinway Musical Instruments Expects to Report 2005 Revenue of $387.1 Million

WALTHAM, Mass. (AP) -- Musical instrument maker Steinway Musical Instruments Inc. said Friday it expects to report 2005 revenue of $387.1 million, with a total gross profit of $11.5 million.

Steinway said it plans to report $49.1 million in adjusted earnings before interest, taxes, depreciation and amortization for the period.

The company said it recognized a loss of $500,000 in December from a debt extinguishment and elimination of related deferred financing costs. Steinway also plans to recognize a loss in the first quarter of $1.1 million to eliminate deferred financing costs.

The company's shares rose $1.75, or 6 percent, to $30.75 on afternoon trading on the New York Stock Exchange.

I follow the industry pretty well. Steinway sales remain strong and the company healthy as far as I can ascertain.

It has very little to do with actual profits of the company and everything to do with a) reported profits vs. expected profits as determined by the analysts, and b) any buying interest by speculators such as hedge funds, who can drive up a thinly traded stock. As you point out, profits made on piano sales are only a part of Steinway's results; saxophones for all we know could be the big driver of their results.

Final point: small and mid cap stocks are a hot market at the moment, and they all did well on Friday

Steinway actually closed at 32.44 on Friday up over 11%. It solidly broke through $30 which has been a ceiling for the last 12 months--some would tell you that if it stays over 30 for several days it has broken out of a trading range and will find a new trading range well above 30.

Sales for pianos have since 1998 have been 161m, 174m, 182m, 169m, 165m, 180m, 204m, 205m and expected to be flat in 2006.

Bullishness on the stock seems to be in high growth of band operations, combined with significant margin expansion. Piano sales have traditionally driven much higher margins and band operations appear to be growing faster than revenue.

EPS in the next year is forecasted to grow in the mid 20% range. Current PE is about 15, PE against forward earnings is about 12.

This is why the stock is appreciating. PE is low if margin growth is 20%+ and they can maintain it.

I hold no Steinway stock, and until today had no understanding of their operations but the thread piqued my curiosity.

My humble opinion only.

When studying a stock you can't just watch price, you also have to watch volume. LVB did a spike like this a while back. If you start to see heavy volume on a strong price that "may" mean someone is buying in with intent to purchase. Other than that is most likely just institutions. Institutions control quite a bit of this stock.

More interesting data per Steinway:

69,400 total pianos were sold in 2004.
Steinway had 9% marketshare or 6246 sales.

In the Tier 1 market (50k+) 3600 pianos sold.
Therefore about 5% of all pianos sold are Tier 1.
Steinway had 89% mkt share or 3204 sales in Tier 1.

There was a NYT article that said around 300 Steinway concert grands were destroyed by Katrina. At $100K a pop, that's $3 million potential income to them.

--Cy--

I take it this is in the US rather than globally.

So Steinway sold (quick subtraction) 3042 pianos that weren't Tier 1?

Best wishes,
Matthew

I had no idea that Steinway makes so much pianos in a year.

The uninsured ones probably won't ever get replaced with another 9' concert grand.

Nonetheless, this could be a good opportunity for other manufacturers to replace the pianos. But I cannot imagine who else besides Steinway would have the manufacturing capacity to build that many 9' concert grands.

Even if you combine all the European manufacturers' annual production of all European 9'+ models, the number might still come out significantly smaller than Steinway's annual 9' concert grand production. There aren't that many Yamaha and Kawai concert grands either, I don't think.

AX, don't you think Baldwin is helping out. I'm told they are trying.

Curry, regarding Baldwin, I don't know. Might you have Baldwin's recent US production numbers or concert grand inventory tally (including whatever unsold concert grands left over from the pre-Gibson era) that you can share? I am quite curious about Baldwin, actually.

Matthew

The data is global and includes their Essex and Boston product lines.

Ax, I doubt there is any inventory left over. Production was at 45 per year.

I didn't see the NYT article, and I'm still trying to figure out how this happened. Surely there weren't 300 Steinway concert grands sitting around in New Orleans and the other Mississippi cities that were hit hard by Katrina?

To keep things in perspective, Steinway is the leading Tier 1 pianomaker by far in terms of volume (I think Bechstein is second?) with over 6,000 pianos sold. Bosendorfer, in contrast, makes only a few hundred pianos a year. I order to stay in business, they obviously need a high profit margin per piano, and thus the astronomical price...
It's interesting that Steinway's approach has been to ramp up production of more pianos, (with the expected result of variabilty in their quality control), vs. Bosendorfer's approach to keep volume very low but quality guaranteed.
It works only if people are willing to pay their high price (which I bet they will, especially with Bosendorfer's stellar reputation in the Asian market and all the new big money flowing there...)

Then something doesn't add up. On the figures you give, only 396 Tier 1 pianos were sold by makers other than Steinway. But Bösendorfer alone produce about that many, and Bechstein quite a lot more; Bluthner are presumably similar, and then there's a few more from Fazioli and the smaller German makers. Global annual production of non-Steinway Tier 1 pianos must be of the order of a couple of thousand, not four hundred.

OK, that explains the sales that weren't Tier 1.

Best wishes,
Matthew

Pete,

Did you see that LVB is now trading at 34.90. Looks like profit was 115M not 11.5m. Looks like their prospects have improved considerably over the last year, even if it is due to band operations. Having captured 89% of the Tier 1 piano market I wonder how the other 11% broke down between Bosendorfer, Fazoli and others. According to their data about 400 were sold by other Tier 1's in total.

Can't be $115 Million in profit; the market cap for the entire corporation is under $300 Million. It does seem like someone is trying to buy them... the Chinese???

I think it's more like $30 million.

Keep in mind that some people consider both 7 foot and 9 foot pianos to be "concert pianos." That is, usually not home pianos or amateur pianos. Surely there were 300 good-sized, potentially high quality pianos lost. Keep in mind that NO alone has a very large musical culture.

What is your evidence to the contrary?

I don't have any evidence at all; I was interpreting "concert grand" as meaning a D and trying to figure out where 300 Steinway Ds would have been located in New Orleans. Your explanation (that the statistic includes smaller Steinways that could have been used in smaller nightclub settings or private homes) makes more sense to me.

The use of the term "concert grand' is very likely provincial. As you mention, Steinway refers to its grands officially by letter. Grotrian names its 7 footer "Concert" and its 9 footer "Concert Royale."

Perhaps they use these as floats during Mardi Gras!

:p

I would bet that a lot of these lost instruments were not in great shape to begin with, and could not be replaced with new instruments given the expense.